The Financial Conduct Authority (FCA) has told pension providers to check whether financial advisers have the “relevant permissions” to advise on pension transfers, and if not “act accordingly”.
In a “dear CEO letter”, the FCA said it is now focusing on providers after assessing financial advisers for the past year.
It is looking to reduce the risk of harm to consumers arising from transferring their defined benefit (DB) schemes to defined contribution (DC) products.
Understand and manage risk
The FCA said: “Providers largely use manual processes, usually retrospectively, to check whether advisers have the relevant permissions to advise on pension transfers.
“If, during a retrospective review, you identify a case where adviser permissions have been changed or removed, we expect you to check that the firm still has the correct permissions and act accordingly.
“You need to ensure your management information is sufficiently detailed to enable management to fully understand and manage the risks from DB pension transfers.”
It said firms should use metrics that allow meaningful oversight, specifically on customer/adviser behaviour.
“This should identify negative trends, such as a high volume of transfers from a single scheme over a short period or customers transferring out of new DC arrangements soon after transferring from DB schemes,” the FCA added.
“You should also assess management information for completeness.”
In-house preparations
The FCA also said it expects providers to have “processes” in place to regularly review DC products are taking the needs of customers transferring from DB schemes into account.
Providers should also make sure their management information identifies target audiences appropriately and any weaknesses in support services, eg training, they need to address.
It said providers should consider “completing second- and third-line reviews of DB activity” to assess systems and controls in place to mitigate operational, regulatory and conduct risks posed by pension transfers.
