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Financial Conduct Authority fines compliance officer for pension transfer failings

Jaclyn Jaeger | July 18, 2017

The U.K. Financial Conduct Authority last week fined a compliance oversight officer £75,000 for failing to exercise due skill, care, and diligence concerning pension transfer failings.

Following an investigation, the FCA found that David Watters failed to take reasonable steps to ensure that the process in place at FGS McClure Watters (FGS) and Lanyon Astor Buller (LAB) for giving advice on Enhanced Transfer Value (ETV) pension transfer exercises was adequate and met regulatory standards. This failure led to a serious risk of unsuitable advice being given to customers of FGS and LAB about the merits of transferring their pension, from a defined benefit to a defined contribution scheme, as part of an ETV pension transfer exercise.  

Approximately 500 customers that received advice from FGS or LAB transferred their pensions from a defined benefit scheme to a defined contribution scheme, with a combined value of approximately £12.7 million.  “In many cases, it may have been unnecessary for customers to leave their defined benefit schemes, thereby losing their guaranteed benefits,” FCA stated.

Watters failed to consider whether the advice process was compliant. He did not take reasonable steps to gain a sufficient understanding of the relevant regulatory requirements and did not obtain an appropriate third-party review of the processes to ensure compliance, the FCA stated. Watters also failed to take reasonable steps to ensure that advisers were properly monitored to reduce the risk of unsuitable ETV pension transfer advice being given to customers.

ETV exercises incentivise customers to transfer their pensions. During these exercises, it is vital that customers considering giving up their guaranteed benefits are given suitable advice on the real benefits and consequences so that they can properly conclude whether a transfer is in their best interests, FCA stated.

“It was Mr. Watters’ responsibility to take reasonable steps to put in place a compliant advice process,” Mark Steward, Executive Director of Enforcement and Market Oversight said in a statement. “His failure to do this placed customers at risk of needlessly losing valuable benefits for their retirement.” 

LAB has agreed to contact affected customers and, where loss has been caused, it will pay appropriate redress.