The Financial Conduct Authority (FCA) has written a ‘dear CEO’ letter to self-invested personal pension (Sipp) providers, warning them about “a number of problems,” particularly historic issues.
In a note published on Friday 12 May, it said its concerns had been heightened by more firm failures, often after Financial Ombudsman Service (FOS) decisions had identified failings.
The regulator outlined concerns about firm failures causing disruption of service for consumers or additional costs being passed on to them. It also pointed to consumers not receiving fair redress when due, particularly where firms have failed to undertake adequate due diligence.
In addition, the FCA raised the issue of pension scams and fraud and consumers being allowed to make investments which should not be accepted in their SIPP (including non-standard assets which fail or become illiquid and lose their value).
Lucy Castledine, interim director of consumer investments, acknowledged that firms had been “working hard” over the last three years but emphasised a “greater need” for high standards of conduct and to ensure that appropriate systems and controls, and operational and financial resilience are in place, along with operational and financial resilience, as well as preparing for the additional requirements that the consumer duty will introduce.
Expectations
The FCA set out its expectations for how advisers should deal with these issues, including proactive identification of consumers entitled to redress and ensuring they receive it promptly.
“The watchdog also said that when handling due-diligence complaints, advisers should take FOS guidance and decisions into consideration when deciding on their approach, and that where complaints or other analysis highlights systemic issues or where the firm has caused foreseeable harm to consumers, they should “…take whatever steps are necessary to meet the requirement to act in good faith towards those consumers.”
The UK regulator also highlighted its expectations on firms’ financial resources too, asking firms to ensure accurate calculation of liquid capital requirements, to consider risks in relation to adequacy of financial resources, to keep their wind-down plans up to date and to keep the regulator informed about concerns arising with regard to meeting debts.
Following a review of 30 firms last year, the regulator emphasised that firms should undertake “robust due diligence on intermediaries, assets and third parties involved in the distribution chain,” including ongoing monitoring, as well as “effective oversight of introducers, with additional scrutiny of any unregulated introducers to avoid foreseeable harm to consumers”.
It also urged firms to undertake “remedial actions” where required.
To avoid consumers accessing Sipps, where these are unsuitable for them, the FCA said that advisers should clearly identify and define target markets, consider the appropriateness of their distribution strategy and to establish when this would or would not provide fair value to retail customers and intended target markets.
Actions to be taken
Castledine concluded: “You are responsible for ensuring that your firm meets FCA requirements including the obligations and expectations set out above. You should take all necessary action to ensure these are met and that you are prepared for the additional requirements that the consumer duty will bring to these areas of priority.”
The FCA confirmed that it would use the senior managers and certification regime to engage with firms on areas of concern.
Castledine added: “You can expect to be asked to demonstrate how you have taken this letter into account in your firm’s work plan. We also expect to be informed proactively by you if work done on the above points result in remedial action or identification of harm.”
