The Financial Conduct Authority (FCA) revealed that it is looking into several companies following pension scam reports.
During an evidence hearing before the Work and Pensions Select Committee, the regulator said that, as of August 2020, it had 85 open cases investigating regulated companies.
“On receipt of intelligence regarding regulated entities, supervisors will review the role of firms involved at different stages of the value chain, and take appropriate action to prevent consumer harm, including stopping them from doing business if necessary,” the watchdog explained.
In comparison, the FCA’s supervision pension scams team opened 109 cases in 2019.
Of the 85 firms in question, six have already agreed to formally vary their permissions, the regulator revealed.
Unauthorised business
But the FCA said that its activity often doesn’t stop at regulated firms.
“Our unauthorised business department (UBD) reviews, assesses, analyses and actions all reports involving unauthorised business activity.
“For pension scams, such reports might relate to the activity of unregulated introducers and lead generators, who can play an instrumental role in encouraging and facilitating the transfer of pension funds into high–risk investments – for example, by offering free pension reviews.”
The watchdog said its UBD received 20,326 reports for the 2019-20 financial year alone, compared to the 16,600 of the previous 12 months.
Types of scams
Since 2017, more than £30m ($38.6m, €33m) was lost to pension scams, data from the FCA and The Pension Regulator recently showed.
The watchdog said that there are currently three generations of pension scams:
- First-generation scams offered unregulated physical assets – such as commercial property – for direct investment.
- Second-generation scams obscured those underlying unregulated physical assets by creating a special purpose vehicle (SPV) to acquire them using funding raised by the issue of corporate bonds.
- Third-generation scams often use the services of a wealth manager to create an investment portfolio that does not require the direct input of the investor; this portfolio then invests in SPV bonds.
The expat dilemma
But the FCA added that it is not only concerned about consumers based in the UK.
British expats are increasingly at risk of financial harm especially when they are encouraged to transfer their pension into an international vehicle, often promoted by advisers based overseas.
The FCA said: “We have seen evidence of consumers receiving advice from UK firms to remain in their DB schemes, but nevertheless proceeding to transfer into pension vehicles – typically International Sipps advised by the overseas firm where the underlying investments are often high-risk or illiquid, and/or pay large commissions to the overseas adviser.
“In these cases, the advice provided by the overseas firm falls outside our regulatory perimeter. However, the advice provided by the UK adviser may breach our rules, for example where the adviser has insufficient knowledge of the intended destination investment.
“We are working on ways to tackle this model.”
