6 | Regulation Matters - January 2020
Preparing for the DB Transfer Proposals The FCA proposes to introduce its ban on contingent charging and some of the related proposals on the 1st of the month after they announce their decision/policy on the proposals, which is expected to be in Q1 2020. If introduced as proposed, the above will require changes to initial disclosure documents and, possibly, triage material. They will also require firms to devise a process for checking – and evidencing – the client’s understanding of the risks.
You should also consider whether you wish to engage with Abridged Advice , which is proposed to be available within a week of the new rules being finalised. In issue 144 we explained the concept of Abridged Advice. Firms will wish to consider whether they are prepared to take on all of the potential liabilities arising from being fully responsible for the suitability of a recommendation not to transfer based only on information about the client; i.e. not based on full scheme information. Firms should check with their PI insurers/brokers when considering whether to engage with Abridged Advice. There is a proposal for a limited transitional period for charging contingent fees on ‘pipeline business’ but only if: n A client agreement for the contingent charge was entered into before the new rules take effect; and n The fee is incurred no more than three months after the new rules take effect. TRIAGE It is very important to ensure that your firm understands the boundary between triage and advice. The FCA provides useful guidance in PERG 12 (Q35 and the subsequent table of examples). It is also very important to keep records of triage cases. Those who were among the reported 1,600 firms that received FCA letters about their past DB advice late in 2019 will be very aware of how important it is to be able to reassure the FCA that a significant proportion of enquiries do not proceed to advice and a recommendation to transfer. It will also be very useful to reassure PI insurers, especially if obtaining/retaining cover for DB advice continues to become more difficult in general.
That could mean that firms will have little/no notice (the FCA says ‘within a week’) before some of the proposed new rules come into effect. In order to reduce the risk of having to suspend taking on new cases or delaying pipeline cases, you might wish to take pre-emptive action in relation to the following proposals, which are intended to come into effect within one week: n The charge for advice not to transfer must be calculated in exactly the same way as it would be calculated if the firm were to recommend a transfer and arrange an individual pension with a suitable investment strategy. n Ongoing charges derived from the proceeds of DB transfers must not be higher than they would be if derived from other types of transactions. n The proposed changes to what’s permitted in Triage material n The proposed Handbook guidance, reminding of the requirement to obtain information on a client’s knowledge and experience asserting that advisers should obtain evidence that a client who is advised to transfer DB scheme benefits understands the risks of the recommendation before going ahead with arranging the transfer. There is also a proposed rule that: • an adviser who seeks to obtain such evidence must make a clear record of what evidence was obtained and, • if it does not show that the client had a reasonable understanding, the firm must either not recommend transferring or keep a record of why it has nonetheless chosen to recommend the transfer.
DO YOU NEED FURTHER HELP OR SUPPORT? If you have concerns about being compliant, get in touch with TenetSelect, the directly authorised regulatory experts, by calling 0800 085 0825. We have a wide range of services to help your firm, and we would love to have a chat to tell you more. Regulation Matters is produced by TenetSelect as guidance only and is based on their interpretation, it is not and should not be relied upon as professional or legal advice. TenetSelect does not accept any liability for any losses arising directly or indirectly in connection with any of the information contained within Regulations Matters to the extent it can be excluded by law.
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