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Switched-on thinking

The end of April brought a close to the FSA’s programme of pension-switching roadshows. The programme was established with the aim of helping support and educate firms about our expectations for this business area and how best they might meet them following our review that found significant instances of unsuitable advice.

More than 1,000 firms were invited to the roadshows and almost all said that, having attended, they understood what action they needed to take to ensure they meet our standards on pension-switching advice.

Companies were invited to one of the events in cases where pension-switching advice accounts for some 40 per cent or more of their overall business.

More than half of the firms in attendance said they would definitely change their business practices as a result, with the remainder considering whether there are any steps they need to take.

During the course of the events, we received valuable feedback from delegates, which we are reviewing in order to determine if any further help is needed. For example, we have published frequently asked questions about pension switching on our website to clarify to firms what we expect of them and what actions they should take.

The roadshows are only one part of our effort to ensure high standards of advice are prevalent across firms involved in pension switching. The results of our thematic review, published in December 2008, clearly indicated that unsuitable recommendations for customers to switch their existing pension or pensions into a new personal plan or Sipp have been produced by too many firms – in some, at significant levels.

From the 30 companies visited and 500 file reviews conducted, we found examples of good practice but also significant levels of unsuitable advice.

In a quarter of the firms involved, a third or more of the cases we reviewed were deemed unsuitable. As a result, four firms have been referred to our enforcement division and 15 have either offered or been required to undertake some form of review of past sales.

We also wrote to more than 4,500 firms giving pension-switching advice to make clear the standards we expect of them, regardless of the amount of business they conduct in this area.

In addition, in February this year, following direct communication with firms and web material setting out the standards we expect to see, we published a suitability assessment template to offer additional practical support.

It is a tool that both advisers and compliance staff may want to use to help ensure any advice on past or future sales is suitable. It identifies outcomes that pose the greatest risk of consumer detriment and can complement firms’ existing practices by bringing consumer outcomes firmly to the fore as the ultimate test of suitability.

As one firm informed us: “We will implement the FSA’s checklist as an additional tool in conjunction with our existing policy/admin- istration checklist.”

Ensuring companies have appropriate controls is essential but using these controls effectively is the key. When assessing systems and controls – focusing on sales processes, compliance monitoring and management information – we discovered that the effectiveness of sales processes generally depends on how well these systems and controls are actually used.

The FSA’s spotlight on consumer outcomes is not just confined to pension switching but is part of our wider drive towards more outcome-focused regulation.

From the very top of the organisation – in the speeches and statements of the chairman and chief executive – to the embedding of treating customers fairly into our core supervisory processes at the turn of the year, our desire to assess firms at the interface with the consumer has been made clear.

Our work on pension switching is symbolic of how this desire plays out in practice and of the importance and seriousness with which any failure by firms to treat customers fairly will be seen and acted upon.

The establishment of a new conduct-risk division equally reflects the significance we attach to the management of conduct risk in firms.

This division will consolidate the enhanced levels of specialist expertise already being applied to routine supervision. The focus will be on the identification of risks at the earliest opportunity in order to prevent risk-crystallisation and supervision that drives firms to deliver good consumer outcomes.

For pension switching, the test will come in the third quarter of 2009 when we will be carrying out follow-up assessments. We will be looking to see if firms have acknowledged the issues identified, looked at their business practices to identify any possible gaps or errors and acted on them.

Those companies we find failing to meet our standards for past or future sales will face tough action, including potential referral to our enforcement division for further investigation.

It is now up to firms to ensure they actively build on the information and support they have been given to deliver tangible improvements on the findings of our assessments last year.


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