What are the FCA changes to the DB transfers market and how can RegTech help with compliance?

Learn more about the changes the FCA has made, the reasoning behind them and how firms can embrace RegTech solutions to safeguard customer outcomes

In changes announced on June 5th, the FCA has outlined a number of steps intended to improve the defined benefit pension transfer market. These changes are designed to reduce conflicts of interest for advisers, support them in following best practice and ultimately safeguard customers.

The measures have arisen as a result of research which show that although going down, the number of instances where unsuitable advice is provided to customers is still unacceptably high.

What changes have the FCA brought in?

The FCA’s changes are all focused on the defined benefit (DB) market. They have set out a package of changes which are designed to improve customer outcomes by simultaneously preventing conflicts of interest for advisers while encouraging positive conduct.

These changes include:

  • A ban on contingent charging in most circumstances. Previously, advisers stood to gain if a transfer went ahead which created a conflict of interest when said transfer was not in the customer’s best interests. This change is designed to irradiate this incentive, whilst creating a level playing field that means advisers recommending the customer stays put are not then left at a disadvantage.
  • When considering workplace pensions and recommending an alternate solution, advisers must now demonstrate why this is more suitable for the customer.
  • Proposals will be implemented allowing advisers to provide abridged advice. The adviser will be able to offer one of two pieces of advice: either a recommendation not to transfer or a statement saying that it is unclear whether the customer would benefit from transferring their pension without further advice. This is designed to offer the customer initial advice at a more affordable cost.
  • Finally, the package offers further support for customers considering whether to transfer out of a DB scheme and for those who have already done so.

Why have these changes been brought in?

The FCA previously conducted in-depth reviews of the 85 most active firms in the market in an effort to better understand the organisations most likely to provide unsuitable advice. This pool covered those who were responsible for 43% of transfers between April 2015 and September 2018.

The findings showed gradual improvement over time. From a low point of 47%, the FCA found that by 2018, 60% of advice offered was suitable. However, they have been vocal in their concern of both an ‘unacceptably high’ number of files where unsuitable advice has been given as well as cases with information gaps preventing them from determining whether advice was suitable or not.

How are customers being better protected now?

The changes brought in are all ultimately designed to improve customer outcomes and reduce the risk of them being offered unsuitable advice. The new measures tackle the problems from two angles.

On the one hand, the FCA are helping advisers offer good advice. The changes lifted above are being supported by a Guidance Consultation designed to help advisers offer better recommendations and put better processes in place. This reinforces best practice by giving clear examples of good and bad conduct, so the changes being implemented are coming in conjunction with prescriptive guidance on the behaviour the FCA want to see from advisers.

Meanwhile, the FCA recognise that consumers will often be concerned that the advice they receive or have followed historically was good. They are therefore introducing an ‘advice checker’ alongside further consumer information to help give people confidence they are making the correct decisions.

How does Recordsure enable firms to support customers?

Changing the behaviour of teams when regulations change can be a challenge, as is monitoring adviser activity for compliance across an entire organisation.

Recordsure has a proven track record of helping large scale financial services organisations fundamentally improve their performance, conduct and culture through the use of smart technology. Our cutting edge platform combines human-level intelligence with machine-powered capability to transform compliance, customer care and risk management at scale.

Use cases we provide solutions for that relate to the changes to the DB pensions transfer market include:

  • Providing a robust means to record, store and quickly review audio conversations. This speeds up review time and provides a comprehensive audit trail across all voice channels including video calling, telephony and face-to-face meetings.
  • Offering advisers a means to self-review, with team leaders also able to share examples of best practice amongst their teams. Meanwhile, we enable supervisors to spend more time reviewing customer conversations, gain a more accurate understanding of advisers’ behaviour and offer them an unprecedented level of support. Combined, these measures help firms improve performance, conduct and culture.
  • Smart analytics tools which can highlight specific topics in conversations, for example whenever a product is discussed exponentially speeding up the review process.
  • Automatically flagging compliance risks early based on anomalous patterns in conversations such as a piece of advice which has given before the necessary research has been conducted so support teams can respond before the customer is given unsuitable recommendations.

From guidance on new technological capabilities through to advice on implementation and future proofing, we are on hand to help share our expertise – please contact us on info@recordsure.com or +44 (0)20 3772 7230.

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