Advising on Pension Transfers

Consultation Paper 17/16, June 2017 

In this Consultation Paper, the FCA consults on changes to COBS 19 designed to secure better outcomes for those affected by the pensions freedoms introduced in 2015. In particular, the FCA is concerned to protect those who might be encouraged to exchange pensions with safeguarded benefits for investments with no safeguards. The FCA's proposals are summarised in five key points:

  • all advice on the conversion or transfer of a safeguarded benefit must result in a personal recommendation (which the FCA believes reflects common current practice anyway);
  • additional guidance in relation to such personal recommendations;
  • amendment to the definition of a pension transfer specialist and guidance in relation to the same;
  • replacement of the transfer value analysis requirement (TVA) (amidst concerns that advice had become focussed on it) with an appropriate analysis of the client's options, including a prescribed comparator indicating the value of the benefits being given up;
  • the application of additional requirements in respect of pension opt-outs to cases where there are potential safeguarded benefits.

However, the Consultation Paper raises a number of other issues for discussion, including the risk that additional requirements will result in firms ceasing to provide this type of advice. Final rules are expected in early 2018.

FCA published findings from its Ageing Population Project

FCA Occasional Paper 31 – Ageing Population and Financial Services, September 2017 

The FCA published an occasional paper setting out the key findings and outcomes from its "Ageing Population Project". The paper also outlines the FCA's strategy for mitigating potential harm which might arise in the way in which financial services are provided to the elderly.

The FCA found that, overall, there was scope for financial services firms to do more to enable elderly customers to access financial services easily and safely. The project and resulting report identified particular issues relating to retail banking, third party access, later life lending and long-term care. The issues identified largely fell under the following three broad headings:

Product and service design

The FCA found that many products and services appeared to have been designed with an "average" consumer in mind, and only a small minority of products were designed with an anticipation of the needs of an ageing population.

To this end the FCA suggested that firms try to understand the needs of older customers and take them into account when developing distribution channels. It also suggested involving older and vulnerable customers in testing and product design.

Customer support

The FCA recognised that not all processes can or should be built around the specific needs of an ageing population. However, where other considerations have taken priority firms should consider the support they offer older customers and how this should change over time.

To this end, the FCA suggests firms could:

  • better understand how to help older customers find the most appropriate products and services for their needs;
  • help customers to identify when they are struggling and encourage them to seek help; and
  • take greater steps to mitigate risks and provide appropriate support as consumer needs and circumstances change.

Continuously review and adapt strategies

The FCA suggests that firms could:

  • consider whether they need to adapt or retain access channels for groups who depend on them; and
  • continuously review strategies, business models, supporting policies and controls to ensure they remain appropriate in light of demographic change or changing consumer behaviours and needs.

At present, the FCA is treating this issue as part of firms' obligation to treat customers fairly, but this paper may be something of a shot across the bows, if firms do not take steps to address the issues identified by the FCA.

Customer understanding: Retail banks and building societies

FCA TR17/1, 17 July 2017

Building on the results of a survey commissioned in response to the recommendations of the Parliamentary Commission on Banking Standards, the FCA has published a thematic review on customers' understanding of the products they buy. 

The FCA based the review on information requested from 18 banks and building societies and obtained by conducting visits to a sample of these firms. Examples provided by banks were about mortgage, credit card and cash savings account transactions. In particular, the review identified that:

  • firms are increasingly aware of the importance of assessing customer understanding. Many have embedded (or are in the process of developing) systems which allow them to assess their customers' understanding of particular products throughout their lifecycle;
  • some firms are confusing customer understanding with customer satisfaction;
  • the most developed systems and practices for checking customer understanding are undertaken after a sale is made; and
  • practices are least developed in online sales. 

The review report also gives examples of differing pre-sale, point-of-sale and post-sale practices, to help other firms develop their approaches in this area. Initiatives taken by firms included:

  • simplifying products and information;
  • nominating individuals to be accountable for customer understanding (in some firms, this aligned with those performing relevant senior management functions);
  • implementing online web-based chat systems; and
  • having a team of qualified advisers to conduct post-sale follow-up calls. 

The FCA does not have any specific rules regulating the assessment of customer understanding. However, it is worth nothing that it considers Principles 6 (customer's interests) and 7 (communications with clients) to be relevant. The findings will be used to inform the FCA's Strategic Review of Retail Banking Business Models. 

Information about current account services

Consultation Paper 17/24, 25 July 2017, and Policy Statement 17/26, 12 December 2017

In July 2017, the FCA opened its consultation on introducing new rules for business current account (BCA) and personal current account (PCA) providers to publish information on service and performance. The Executive Director of Strategy and Competition at the FCA had suggested that, as information may not be as readily available as it could be, customers are "discouraged from looking for current accounts offering better performance".

The FCA's aim was to "promote effective competition" and empower customers to make effective comparisons between providers of PCAs and BCAs by requiring providers to publish information in the following categories:

  • account opening, including account opening processes and information on the time it takes to open an account;
  • time taken to replace lost, stolen or stopped debit cards;
  • service availability – how and when services can be accessed; and
  • major incidents – information about the number of operational and security incident reports to the FCA.

The consultation closed on 25 September 2017, and the FCA has now published a Policy Statement containing its feedback to the consultation, which has shaped the final rules. PS17/26 affects the majority of participants in the PCA and BCA markets, as well as those interested in the market. This includes firms that accept deposits (for example, banks and building societies) and those that provide payment accounts as defined by the Payment Accounts Regulations. It is also of interest to organisations that offer comparison services.

The response to the consultation was broadly supportive, although concerns were raised in some areas and some respondents submitted that the proposals could actually go further. The main changes to the rules consulted on in CP17/24 are as follows:

  • In response to concerns about the suitability of the metrics relating to powers of attorney as an indicator of the service provided to vulnerable customers, these data will not be required to be published. Instead, UK Finance and the Building Societies Association are to coordinate development of an industry agreement to publish comparable information voluntarily.
  • Transitional provisions will be put into place allowing firms not to publish account opening metrics and debit card replacement metrics until 15 February 2019. Firms will need to begin recording the time taken to open accounts and replace debit cards from 1 October 2018.
  • Information about current account services is to be presented in a series of standardised tables in a set order. The FCA believes that this will make it easier to compare the information as published.

The full rules will come into force on 15 August 2018, when providers will be required to publish standing data in relation to account opening, service availability and major incident metrics.

Financial Advice Market Review (FAMR): implementation Part II and insistent clients

Policy Statement 17/25, December 2017

FAMR's final report, published in March 2016, set out to tackle the barriers facing consumers in accessing financial advice in relation to three main areas (please click here for our summary of FAMR's final report). One issue identified by firms in that context was their hesitation in providing customers with guidance, in case they were held to have given advice, albeit inadvertently.

As a result, FAMR recommended that the definition of advising on investments in the Regulated Activities Order be changed in line with the MiFID definition, such that most firms would only be carrying out the regulated activity if they provided a personal recommendation. In its Consultation Paper 17/28 the FCA consulted on the Handbook changes necessary as a consequence (including in relation to access for consumers to the FOS and FSCS).

The Policy Statement largely implements the consequential changes proposed in the consultation paper, and issues new guidance on how firms should process requests from "insistent clients" (i.e. those who have received a personal recommendation and decide to do something other than follow it).

The Consultation Paper had proposed extensive changes to PERG, including such scenarios as pre-purchase questioning (including decision trees), filtering on websites, and how the narrowing in scope of regulated advice (described above) will apply. Rather than implementing these changes at this stage, the FCA is considering these further and aims to publish guidance on these points early in 2018.

The Policy Statement also consults on retiring two pieces of non-Handbook Guidance: on inducements and conflicts of interest (FG14/1), and on independent and restricted advice (FG12/15).

Streamlined advice and consolidated guidance

Finalised Guidance 17/8, September 2017

Like the policy statement summarised above, this Finalised Guidance relates to recommendations made by FAMR. In this case, the guidance relates to two specific issues: streamlined advice, and the fact-find process.

For firms which have been following the development of the FCA's guidance in this area, it is worth noting that two key pieces of guidance (FG15/1 and FG12/10) will be retired from 3 January 2018. The Finalised Guidance now produced by the FCA replaces or restates certain parts of those two documents.

The term "streamlined advice" is used to describe a personal recommendation limited to one or more of a client's specific needs, that does not involve analysis of the client's circumstances not directly related to those needs. The FCA's guidance in relation to the provision of streamlined advice focuses on firms' provision of automated advice services, and it is clear that such services will need to be designed, tested and analysed carefully to ensure that customers use them appropriately. The guidance is detailed and the FCA has included examples of good and poor practice by firms.

The FCA also raises the possibility of "porting" a fact find from one firm to another, and anticipates that this might have advantages if done appropriately. It is clear, however, that each firm relying on the fact find would need to have suitable arrangements in place to confirm the accuracy of data before they are used.