Update on the FCA's review of Defined Benefit transfer advice
The FCA has been looking to improve the quality of pension transfer advice for some time now.
However, despite the crackdown on defined benefit transfers being announced as a strategic priority earlier this year, it appears that factors, such as Covid-19 have put the FCA's investigations into advice suitability on the back foot – for now, at least.
In 2017, the FCA began a consultation into the suitability of Defined Benefit (DB) transfer advice, which was published in 2018. This led to the FCA contacting 1,649 firms regarding their advice processes in late 2019, requesting firms to consider potential risk areas and to take action where required. The firms contacted were those who were most active in the market and advising large volumes of DB transfers.
The firms were asked to provide feedback on the specific risk areas identified by the FCA and to set out details of changes made to improve the quality of their DB transfer advice. It was expected that the FCA would review firms' responses and might potentially take further action against those firms it remained concerned with.
In fact, the FCA has recently confirmed that so far none of the 1,649 firms have been contacted to carry out redress exercises based solely on the issues found in their response.
This is not to say that no firms have been contacted to carry out redress exercises at all but we are only aware of a small number of firms that have.
The FCA says that they will continue to review the suitability of DB pension advice, which will involve further work with the firms which have been contacted.
From the firms asked for information, 39 firms did not respond, although 14 are no longer active in the DB market.
The FCA have also revealed that it has not collected data on how many DB transfers have taken place since September 2018.
The FCA states that it holds no data for DB transfers in 2019 or 2020.
Despite this, the FCA says it is looking to collect DB transfer data through alternative methods. For instance, the FCA is using whistleblowing as a means of highlighting risks on an individual basis. The FCA has also proposed amending the Retail Mediation Activities returns, to ensure that firms provide a comprehensive view of their transfer advice.
It appears that the FCA's attention may not currently be fully focused on DB transfers. Whether the FCA will continue its analysis of DB transfers in the very near future remains to be seen. However, it seems likely that the FCA will regain its momentum at some point and it is clear that firms which continue to carry out DB transfers will remain center stage of the investigation.