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RDR: FSA to crackdown on abuses during RDR transition period

The FSA has warned that it will crack down on advisers and providers who may take advantage of the transition period in the run-up to implementation of the Retail Distribution Review.

In the feedback statement released this week, the FSA says possible transitional implementation risks include providers offering ‘closing down’ commission deals and advisers churning customers’ policies before initial commission is withdrawn.

It also said that provider firms could find ways to get around the clampdown on remuneration practices by creating alternative financial arrangements with adviser firms, or by advisers threatening to withdraw future support from providers in a bid to raise finance.

The FSA noted that some providers have already reportedly been using commission rate increases – particularly on life assurance bond business – to stimulate sales in the difficult economic climate.

The regulator said there was evidence that these providers may be using the RDR as an excuse to do this by saying they are offering remuneration flexibility to advisers.

The FSA expressed concern that the transition period may lead to further commission increases and the possibility of unsuitable sales and said it would seek to mitigate this risk post-implementation.

The FSA says: “We intend to intensify our monitoring of areas such as these during the transition period, and we will not hesitate to act against significant abuses.”

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