Delegation of regulated activities – warning from the FCA
Adviser firms delegating regulated activities to unregulated third parties have been removed from the FCA's Christmas card list following a notice issued this week.
The notice reports that the FCA has become aware of adviser firms delegating advice to unregulated third parties, with the authorised party then presenting the recommendations without personally contacting the customer or checking to see whether the recommendations were suitable.
The notice focuses on pension switching – transferring assets between money purchase pension products such as a personal pension to a SIPP - however, the notice applies to any form of regulated activity. The FCA notes that it is essential for advisers to uphold their FCA Handbook responsibilities and "maintain ownership" of the advisory process. Although an adviser may have an arrangement in place with an unregulated third party to provide advice, that does not shift responsibility from the adviser for all decisions and actions arising from regulated activities provided in their name. This means that if the advice is found to be unsuitable by FOS, the adviser remains responsible for any redress.
An example of an unregulated third party being involved in the advisory process was the FOS' decision in Berkeley Burke on which we have previously blogged and remains the subject of a review by FOS. In the published decision FOS found Berkeley Burke responsible for the investment loss in a SIPP following the transfer of the complainant's pension from a personal pension product. Given the transfer to the SIPP the complainant was able to invest in more esoteric investments – Green Oil – and lost all of their pension pot as a result. Although Berkeley Burke did not delegate responsibility to the unregulated party for advising on investments or the switching of the complainant's pension to the SIPP – in fact Berkeley Burke disclaimed any responsibility for the investments and other advice – FOS' decision does highlight the involvement of unregulated third parties in the pension advisory process.
The FCA's notice discloses that a number of financial adviser firms and associated individuals have been referred to Enforcement as they may have breached the FCA's requirements in delegating authorised activities to unregulated third parties. The notice should serve as a warning to all firms to ensure that all advice is conducted by appropriately qualified and regulated individuals; although a firm may seek to delegate the provision of advice that will not delegate responsibility for that advice in the FCA's (or FOS') eyes.