The regulator allowed an adviser to complete nine defined benefit pension transfers at the end of last year despite the work being excluded from the firm's insurance.
The advice firm notified the Financial Conduct Authority in August 2019 that it was unable to renew its professional indemnity insurance to cover defined benefit transfer activities, and was subsequently told to cease writing this type of business and transfer any pipeline clients to another adviser.
The firm objected, instead asking to continue working as normal for up to six months while the firm found appropriate professional indemnity cover - which the adviser said would save its clients their £1,250 advice fee.
The FCA declined this request but did ask for more information on each of the adviser's pipeline clients, including what the impact of having to transfer them to a different adviser would be.
After several weeks of correspondence the regulator agreed the adviser could complete the transfers of nine defined benefit pensions, namely those which had "already been submitted to trustees of the ceding arrangement or the provider".
The case eventually found itself on the desk of the FCA's own watchdog, the Complaints Commissioner, who sided with the regulator and gave credit for it acting to mitigate client losses and unnecessary harm to the advice business.
Commissioner Antony Townsend noted the FCA had also suggested refunding the client fees to avoid any consumer losses as a result of not being able to complete the transfers, which the adviser declined.
This is clearly a serious issue, causing problems for clients, firms, and the regulatorCommissioner Antony Townsend Mr Townsend did however ask the FCA to consider whether the timescales followed to deal with pipeline clients of advisers cancelling transfer permissions could be tightened.
He said: "I do however believe that there may be some lessons to learn about the way in which the FCA deals with pipeline cases, and how early in the process it makes decisions about which transactions can be completed and which have to be referred to a different firm, to save time both for itself and the firms it is dealing with.
"The FCA has a difficult balance to strike in providing robust protections for consumers – which may require it to proceed with some caution – while moving with sufficient speed to try to avert unintended consequences, for example problems with pipeline clients."
The commissioner raised concerns over the wider state of the professional indemnity market, and revealed the complaint was not the first he had received from a firm which had to withdraw from the transfer market as a result of being unable to renew its cover.
He said: "I have sympathy for the strength of feelings that arise when through no fault of your own or that of your firm you are suddenly unable to carry on doing a type of business which amounts to a significant portion of your firm’s work and consequently may lead to income reduction and job losses.
"You have made a valid point that it cannot be guaranteed that a firm that has PII cover in October will still have that cover in January the following year, so the holding of valid PII at a particular moment is no guarantee of cover at the point a claim may be made."
Mr Townsend said the FCA had also recognised in this case that the adviser was unable to obtain the relevant cover "through no fault of its own", and acknowledged the regulator was continuing its work in this area via "large data based reviews".
rachel.mortimer@ft.com
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