The FCA is planning to require that transfers from DC to DC only be allowed on an advised basis, potentially placing huge regulatory risk on the shoulders of providers, according to sources close to Corporate Adviser.
The regulator is believed to be planning an extension of the so-called ‘second line of defence’ when it publishes final rules on pension transfers that could require advice for DC to DC transfers. The new rules could require providers to be held to have advised clients where they move them from a personal pension into a drawdown arrangement and some industry experts fear even phased UFPLS withdrawals could be classified as operating within an advised framework.
Such a rule change would have huge ramifications for at-retirement propositions that have been in development for several months where providers have been developing D2C propositions they had hoped could receive retirees looking to go into drawdown on a non-advised basis. D2C platforms are also having to face up to the strict new requirements set out in FCA Final Guidance paper 15/1, published on the same day as the FCA’s Dear CEO letter that ordered the ‘second line of defence’, which severely limit the extent to which execution-only propositions are able to give useful information to customers.
The FCA said in its Dear CEO letter that firms would be able to deliver the ‘second line of defence’ risk warnings, which require providers to ask certain suitability questions before allowing at-retirement transactions, without providing regulated advice but added that full requirements it will place on firms will be made clear in the published rules.
Providers and investment platforms are understood to be considering whether to continue offering a scaled back, content-poor execution-only offering or taking the regulatory risk that comes with full advice.
A source says: “The FCA is making it clear to providers that it is likely that DC to DC transfers will be considered as taking place under advice. They are basically saying that if you want to take these new customers, you have got to be prepared to look after them.
“Providers now have to decide whether they are prepared to take these customers on on an advised basis, knowing that they are on the hook for the Financial Services Compensation Scheme in the event that things go wrong. And if they don’t then they will have to tell customers to go and get advice, which they may not be able to source, meaning they may struggle to do anything. It’s not ideal with just a few weeks to go until the new rules take effect.”
Standard Life head of pensions strategy Jamie Jenkins says: ”Our view is that there is a legitimate process of non-advised drawdown and we have not been informed anything to the contrary.”