On 27th April, the FCA published a webpage highlighting the increased risks to consumers when overseas firms refer defined benefit scheme members to UK firms for pension transfer advice. The FCA is concerned about overseas firms targeting the UK pension benefits of DB members living overseas. The page also sets out the FCA's expectations of UK firms (often SIPP operators) accepting such business.
The webpage runs through the existing FCA rules which apply to UK firms accepting such business and reminds firms that the Consumer Duty will also apply. The FCA also includes three scenarios where it considers the likelihood of overseas advice models resulting in poor consumer outcomes increases, and provides guidance on what firms should do, both to mitigate risks to consumers and to the firms themselves. These scenarios are when the UK advice firm:
- fails to carry out adequate due diligence on the activities of overseas firms involved in the recommendation;
- has little or no interaction with the member, relying on information provided by the overseas firm;
- confirms ‘appropriate independent advice’ to DB scheme trustees where they have given abridged (not full) advice to the member;
- does not adequately consider the effect of all charges on the member in their advice on the transfer, where charges on overseas investment products can often be complex and, in some cases, higher than the potential investment growth on a realistic projection;
- recommends that the member remain in their scheme. The member subsequently becomes ‘insistent’ and requests the UK firm arrange a transfer. There are indications of coaching or that the member was acting under the influence of the overseas firm.
Where UK firms find their own practices fall within one or more of these scenarios, the FCA webpage would appear to be a key indicator that the firm should revisit its approach, with the Consumer Duty in particular in mind. The webpage provides further guidance on what the FCA considers firms should do next.
UK firms engaging with overseas firms or offering advice to scheme members based outside the UK should have regard to their regulatory responsibilities. This includes the Consumer Duty, particularly to act proactively to deliver good outcomes for retail customers and to avoid causing foreseeable harm to retail customers.