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FCA tells providers to review DB transfer procedures

The FCA says product providers must be able to show they have taken the needs of customers into account that have transferred out of defined benefit schemes.

In a Dear CEO Letter sent to the heads of major providers, the regulator lays out how providers should treat customers fairly in the context of DB to defined contribution transfers.

The letter, written by FCA co-director of advice and life insurance supervision Debbie Gupta, says the watchdog has now completed its review of pension product providers and identified the key drivers of harm in the market.

It explains what firms need to consider when designing, marketing and providing pension products.

Regarding product design and target market, the letter says: “Your processes for regularly reviewing DC products should be able to show how you have taken the needs of customers transferring from DB schemes into account.

“This is particularly important if the products were developed before pension freedoms were introduced in April 2015. Providers should also make sure their management information identifies target audiences appropriately and any weaknesses in support services, e.g. training, they need to address.

“These reviews should be of a sufficient standard to provide the appropriate senior manager function holder with the information they need to be confident they are dealing with incoming DB business appropriately.”

When it comes to FCA permissions procedures, the letter says providers largely use manual processes, usually retrospectively, to check whether advisers have the relevant permissions to advise on pension transfers.

The FCA adds: “If during a retrospective review you identify a case where adviser permissions have been changed or removed, we expect you to check that the firm still has the correct permissions and act accordingly.”

To keep governance and risk management up to date the watchdog suggests providers should consider completing second- and third-line reviews of DB activity since pension freedoms were introduced.

This is to assess the systems and controls in place to mitigate operational, regulatory and conduct risks posed by pension transfers.

Any tools or documentation that providers give to advisers need to be up to date, it adds.

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  1. Having read the letter and agree with the FCA as it is simple common sense. It’s a bit like the Geneva convention.
    E.g an officer orders you to shoot prisoners and non combatants, you know it is wrong as the Geneva Convention training was (in the 80’s and 90’s) and I assume remains mandatory (and ignorance of the law is no defense) , so when the proverbial hits the fan, if you did shoot the prisoners u will be tried for war crimes. Theoretically along with the officer, but they will either already be dead or have disappeared taking refuge in another country without an extradition treaty!
    With good MI data, as the FCA are suggesting, the provider can avoid shooting the prisoners due to ignorance.
    No MI data means no get out of jail free card. Good Mi data and process and u will be fine.

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