The FCA has a working definition of a 'perfect storm' for a financial services business:
"An expanding commercial opportunity, entrepreneurial industry sector, high value investments available and low levels of consumer knowledge."
This statement is the perfect description of the specialist
pension transfer advice sector which is under strong market and
economic pressure and is facing a skills shortage among
advisors.
The FCA is broadcasting its regulatory initiatives and findings
not to enhance its own reputational standing but as a shot across
the bows to this sector. Its expectations of the standard in advice
processes, and firms' monitoring and oversight of those
processes, are becoming ever more demanding. The most recently
published findings from the FCA's review of 22 DB firms mean
that this issue's RAG status will have shifted from amber to
red. The FCA is likely to crystallise its expectations of firms in
a 'Dear CEO' letter on this point, possibly seeking
attestations from either the Head of Compliance or the CEO.
Firms will appreciate that such requests carry a significant regulatory risk if the response is not supported by an adequate amount of due diligence on the issue. However, such an exercise also presents the challenge of applying the correct regulatory standards. The FCA has issued a consultation on the rule changes as it is seeking to enhance standards in this area.
However, for the purposes of its review of client files from 13 firms, it must have been applying the current standards.
That the compliance monitoring at these firms was reporting the same results and management were doing nothing is simply not believable.
It seems almost certain that this report indicates that the FCA's expectations of the advice processes in this sector and current industry practice are not on the same page at all.
If a firm is looking for specialist support in this area before
the FCA comes calling, they need to ensure that the advisor they
choose is at the coal face on these issues and has seen the
FCA's specialist team in action at first hand.
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