Defined BenefitMar 29 2019

Providers hit back at FCA 'clarification'

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Providers hit back at FCA 'clarification'

Pension providers have sought further clarification from the Financial Conduct Authority on the extent of their liability with regards to defined benefit transfers.

In a letter sent to pension provider bosses last week, the regulator suggested providers should consider the introduction of second and third line reviews of DB transfers to mitigate any risks posed by the transfers. 

It added providers had a responsibility to identify risks from business coming in, including a high volume of transfers from a single scheme over a short period of time or customers transferring out of new DC arrangements soon after transferring from DB schemes.

This appeared to place responsibility for accepting DB transfer business on providers even where there was an adviser involved.

The regulator has since come out to state providers will not be held responsible for the suitability of any advice given, but it expects them to understand the underlying drivers and whether a transfer is detrimental to consumers.

But providers are unhappy with this clarification, saying it changed little from how they had perceived the letter in the first place.

Claire Trott, chairwoman of the Association of Member Directed Pension Schemes, said: "The Dear CEO letter could be read that the FCA are implying that pension providers should now act as gate keepers, checking that the advice given to a client to transfer from their defined benefit pension scheme is suitable. 

"If providers are going to be required to check that the advice to transfer is appropriate then surely that throws in to question why an adviser is involved at all.

"Quite rightly, we have been telling people that in order to transfer their pension they are required to get advice on whether this is a suitable option for them and most providers will not accept a DB transfer unless an adviser has recommended this is in the client’s best interest. So, are we now are being told that we should be questioning this advice."

It is understood that the basis of the letter was from a sample of providers that had already completed second and third line reviews, with DB transfers identified as an emerging risk. 

The number of providers within the sample has not been confirmed, and there is no indication of how many will undertake these reviews.

Ms Trott added: "It is clear that the FCA are concerned about transfers from defined benefit pension schemes and of course want to protect the public, however, requesting that providers monitor the financial advice being given doesn’t seem like the most sensible or feasible option.

"Although the industry agrees that DB transfers do need to be monitored, this should be through the FCA monitoring those giving advice directly instead of through pension providers."