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."
Ms Trott added providers already had to check whether a personal recommendation to transfer has been given and that the adviser has the correct permissions for conducting the transfer advice.
If the regulator requires providers to be taking additional responsibility then it needs to give more clarification on the systems and processes that will be needed to comply with this due diligence, she said.
Sir Steve Webb, director of policy at Royal London, also said providers would not be in a position to check IFA advice on transfers, but outlined some things they should do.
He said providers should make sure that advisers have the right permissions, look for ‘outliers’ when it comes to charges and also any activity that could raise concerns, such as ‘washing’ money.
He added: "It would clearly be inappropriate for providers to second-guess the work of advisers who are giving transfer advice. But it is quite right that providers should ensure that all advisers who they are working with have the necessary permissions.
"Providers should also be alert for patterns of financial flows which raise concern such as money ‘washing through’ from the original provider to another investment very soon after a transfer has taken place."
Since the FCA's letter was published last week Sipp provider Intelligent Money has stated it will no longer accept DB transfers amid fears it could be held liable for adviser recommendations.
Julian Penniston-Hill, chief executive at Intelligent Money, said about his decision: "Up until Friday afternoon we were able to rely on the Conduct of Business Sourcebook but with the Dear CEO letter the goalposts have now been moved. We cannot assume the same level of liability as we did previously.
"My real concern is that now this principle has been established, it is not logical to restrict it to DB. My concern is that the FCA may apply this to all advised business. Providers would then, justifiably, stop dealing with advisers and start targeting the client base directly."
