The Financial Conduct Authority (FCA) stopped 21 advisory firms from providing defined benefit (DB) pension transfer advice in 2019, a freedom of information request (FOI) has revealed.
The common thread running through all of the businesses was that they did not have the right professional indemnity (PI) insurance cover.
The watchdog is working on an “ongoing programme looking at the quality of DB pension transfer advice”, it said in the FOI submitted by financial services publication New Model Adviser.
It is not the first time that the FCA has taken action to stop players in the market from providing such advice, with 24 advice firms falling foul of the watchdog following “significant bad practice” in 2019.
A similar number gave up their permissions to provide pension transfer advice following a sharp rise in the cost of insurance.
The FCA admitted, in worst-case scenarios, businesses could see their premiums skyrocket by between 200% and 500%.
The director of life insurance and financial advice at the FCA, Debbie Gupta, said the regulator has very strict lines when it comes to firms having the right PI cover.
“We are concerned that some firms are not holding adequate financial resources and insurance,” Gupta said at the Dynamic Planner conference attended by International Adviser on 5 February 2020.
“It increases the risk that firms are unable to put things right when they have caused harm for their clients, and that has an impact on consumer confidence in this market.
“Where we see firms operating in this market without appropriate PI insurance, we are maintaining a very strict line – that insurance coverage is in place to protect both firms and consumers, and it must serve the purpose for which it is needed.
“If they don’t, they should not be advising on transfers now and in the future, including stopping any pipeline business.
“And when I say appropriate cover, I mean that it should not exclude relevant lines of business; such as dealing with transfer advice.
“It should not include sub-limits – meaning cover falls below minimum requirements – and it should not include excesses that are at such a level that essentially the cover is materially ineffective.
“Simply put, any firm operating in this market must, at all times, be able to meet its liabilities if they fall due.”