FINAL NOTICE

To:

David Nigel Lewis

and

To:

West Wales Financial Services Limited (in liquidation)

(as an interested party)

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby:

(1)
publishes a statement of David Nigel Lewis’s (“Mr Lewis”) misconduct for

failing to comply with Statements of Principle 6 and 7, pursuant to section

66 of the Act;

(2)
withdraws the approvals granted to Mr Lewis to perform the SMF3

(Executive Director), SMF16 (Compliance Oversight) and SMF17 (Money

Laundering Reporting Officer) senior management function at West Wales

Financial Services Limited (“WWFS” or “the Firm”), pursuant to section 63

of the Act; and

(3)
makes an order, pursuant to section 56 of the Act, prohibiting Mr Lewis from

(a)
any senior management function in relation to any regulated activity

carried on by an authorised person, exempt person or exempt

professional firm, and

(b)
any function in relation to the regulated activity of advising on Pension

Transfers and Pension Opt Outs carried on by an authorised person,

exempt person and exempt professional firm.

1.2.
The Authority would have imposed a financial penalty of £38,300 on Mr Lewis

(reduced to £26,800 as Mr Lewis agreed to settle at an early stage of the

Authority’s investigation and therefore qualified for a 30% (stage 1) discount

under the Authority’s executive settlement procedures). However, the Authority

recognises that there is significant liability for redress for WWFS’s customers

which has fallen to the Financial Services Compensation Scheme ("FSCS”). As at

21 November 2023, the FSCS has paid out £758,725.55 in compensation to

customers of WWFS. Had it not been for the compensation limit of £85,000, the

total compensation available to customers would have been £972,197.28. In

these circumstances, the Authority has agreed with Mr Lewis that in lieu of the

imposition of a financial penalty, the sum of £26,800, be paid direct to the FSCS

to contribute towards any redress due to WWFS’s customers. This is in furtherance

of the Authority’s consumer protection objective. In light of the above, and taking

into account all the exceptional circumstances of the British Steel Pension Scheme

(“BSPS”), the Authority hereby publishes a statement of Mr Lewis’ misconduct.

2.
SUMMARY OF REASONS

2.1.
Mr Lewis, who was responsible for ensuring that WWFS provided advice which

met with the Authority’s requirements, incompetently oversaw a defined benefit

pension advice process which resulted in customers’ retirement funds being

unnecessarily put at risk.

3


2.2.
Between 16 March 2017 and 14 December 2017 (the “Relevant Period”), Mr Lewis

was approved by the Authority to perform the CF1 (Director), CF10 (Compliance

Oversight) and CF11 (Money Laundering Reporting) controlled functions at WWFS.

2.3.
Following the introduction of the Senior Managers and Certification Regime for all

firms authorised by the Authority, the controlled functions Mr Lewis was approved

to perform were replaced by senior manager functions. As a result, from 9

December 2019, Mr Lewis was approved to perform the SMF3 (Executive

Director), SMF16 (Compliance Oversight) and SMF17 (Money Laundering

Reporting Officer) senior manager functions at WWFS. Mr Lewis was not a

qualified Pension Transfer Specialist and had no prior experience of advising on

defined benefit pension scheme (“DBPS”) transfers.

2.4.
WWFS was an Independent Financial Adviser firm based in Llanelli, Wales.

2.5.
During the Relevant Period, WWFS was authorised by the Authority to undertake

pension transfers and pension opt outs and to arrange (bring about) deals in

investments. It is now in liquidation.

2.6.
During the Relevant Period, WWFS advised 27 of 28 customers to transfer out of

their Defined Benefit Pension Schemes (“DBPS”) before WWFS agreed to cease

providing Pension Transfer advice following the Authority’s intervention. All 27

customers followed this recommendation. Notwithstanding FCA guidance which

created a presumption against advising a customer to transfer out of their DBPS,

the Firm advised all but one of their customers to complete a Pension Transfer,

25 of whom were members of the BSPS.

2.7.
On 14 December 2017, the Authority took action and stopped the transfer of 141

customers, all of whom were members of the BSPS, who had received advice from

WWFS to complete a Pension Transfer.

2.8.
Without the Authority’s intervention, it is likely that these customers would have

transferred out funds totalling £43,722,771. Absent a material change in approach

to advice in the pipeline cases, the Authority considers it highly likely that many

of these customers would also have received unsuitable advice.

2.9.
Mr Lewis, in the performance of his CF10 (Compliance Oversight) function, was

responsible, in all cases, for taking reasonable steps to ensure that the Firm’s

advice was compliant with the Authority’s rules.

2.10.
The Authority reviewed 19 of WWFS’ completed Pension Transfer advice files from

the Relevant Period. Their pension fund was, for a significant proportion of these

customers, their most valuable asset and many had limited additional resource or

other pension provision. The Authority found that a large proportion of files were

not compliant with regulatory rules and guidance relating to the suitability of

Pension Transfer advice.

FCA’s Principles for Businesses and Statements of Principle for Approved Persons

2.11.
During the Relevant Period:


Principle 6 of the FCA’s Principles for Businesses stated that: “a firm must

pay due regard to the interests of its customers and treat them fairly”.


Principle 9 of the FCA’s Principles for Businesses stated that: “a firm must

take reasonable care to ensure the suitability of its advice and discretionary

decisions for any customer who is entitled to rely upon its judgment.”


Statement of Principle 6 stated that: “An approved person performing an

accountable higher management function must exercise due skill, care and

diligence in managing the business of the firm for which they are responsible

in their accountable function”.


Statement of Principle 7 stated that: “an approved person performing an

accountable higher management function must take reasonable steps to

ensure that the business of the firm for which they are responsible in their

accountable function complies with the relevant requirements and standards

of the regulatory system.”

Mr Lewis’ failings in the performance of his CF10 (Compliance Oversight) function

2.12.
During the Relevant Period, by reason of the matters described in section 4 of this

notice, Mr Lewis breached:

a)
Statement of Principle 6, in that he failed to exercise due skill, care and

diligence in managing the business of the firm for which he was responsible

in his CF10 (Compliance Oversight) function; and

b)
Statement of Principle 7, in that he failed to take reasonable steps to ensure,

in respect of his performance of the CF10 (Compliance Oversight) function,

that WWFS complied with Principles 6 and 9 of the FCA’s Principles for

Businesses, and COBS 2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R, as a

result of the deficiencies in the Firm’s Pension Transfer recommendations.

2.13.
In particular, in breach of Statement of Principle 7, Mr Lewis failed to take

reasonable steps to ensure that:

a)
Each of the Pension Transfer Specialists working for the Firm obtained the

necessary information about the customer;

b)
Each of the Pension Transfer Specialists working for the Firm properly

assessed, on the basis of the information obtained, or gave due

consideration to, whether the recommendation was suitable for the

customer and in their best interests. In particular, Adviser A, one of WWFS’

Pension Transfer Specialists failed properly to assess:

i.
whether the customer was reliant on the income from their DBPS and

whether they could financially bear the risks involved in a Pension

Transfer;

ii.
whether the aims which drove the Pension Transfer recommended

were in the best interests of the customer;

iii.
whether alternatives to a Pension Transfer could meet the customer’s

needs;

iv.
whether the customer had the appropriate knowledge, experience and

attitude to transfer risk;

v.
whether the transfer analysis supported a recommendation to

transfer out of the ceding scheme; and

vi.
whether the receiving fund was suitable for some customers.

c)
the documentation issued to customers demonstrated the rationale for

transfer, was easily comprehensible and error-free.

2.14.
The failures set out at paragraph 2.13 (a)-(c) above resulted from Mr Lewis’ failure

to take the following reasonable steps:

a)
undertake
any
management
information
analysis
regarding
the

recommendations produced by WWFS’ Pension Transfer Specialists;

b)
challenge the reasons for why almost all customers were recommended to

transfer out;

c)
respond with additional resource to the large increase in volume of defined

benefit work from September 2017 onwards, a large proportion of which

was undertaken by Adviser A, who was relatively inexperienced, particularly

in advising on Pension Transfers;

d)
with knowledge of non-compliant Pension Transfer advice given by Adviser

A, ensure that Adviser A’s advice was routinely reviewed by an appropriately

qualified person;

e)
in the knowledge of non-compliant Pension Transfer advice given by Adviser

A, restrict the workload placed upon them and provide training/support;

f)
ensure that the Pension Transfer advice provided on behalf of WWFS was

assessed not just for file completeness but for its suitability, and

g)
adequately monitor Adviser A, taking into account their inexperience and

the large proportion of WWFS’s Pension Transfer advice that they gave.

7


h)
Each of these steps would have been reasonable ones for Mr Lewis to have

taken in the performance of his CF10 (Compliance Oversight) function, to

ensure that WWFS complied with Principles 6 and 9 of the FCA’s Principles

for Businesses, and the relevant COBS rules.

2.15.
Furthermore, by not taking these steps, and thereby failing to maintain an

appropriate level of understanding about WWFS’ Pension Transfer business, a

large proportion of which was delegated to Adviser A, an inexperienced Pension

Transfer Specialist, Mr Lewis failed to exercise due skill, care and diligence in the

performance of his CF10 (Compliance Oversight) function, in breach of Statement

of Principle 6.

2.16.
Mr Lewis’ failings are particularly serious because:

a)
They caused a significant risk of loss to customers who transferred out of

their DBPS as a result of WWFS’ advice. The total value of transferred funds

was
£9,769,550.32.
The
average
completed
transfer
value
was

£361,835.19;

b)
Had it not been for the Authority’s intervention, Mr Lewis’ conduct would

have resulted in large numbers of customers risking their retirement income

by transferring out of their DBPS;

c)
Mr Lewis’ breach disproportionately affected BSPS members, who made up

the majority of WWFS’ Pension Transfer advice customers during the

Relevant Period, many of whom were in a vulnerable position due to the

uncertainty surrounding the future of the BSPS; and

d)
Mr Lewis, from a review conducted by an external compliance consultant,

was aware of deficiencies in the Pension Transfer advice given by Adviser A,

but allowed WWFS’ advice process to continue, absent any enhanced or even

routine monitoring, with no material changes in approach.

2.17.
The Authority would have imposed a financial penalty of £38,300 on Mr Lewis

(reduced to £26,800 as Mr Lewis agreed to settle at an early stage of the

Authority’s investigation and therefore qualified for a 30% (stage 1) discount

under the Authority’s executive settlement procedures). However, the Authority

recognises that there is significant liability for redress for WWFS’s customers

which has fallen to the FSCS. As at 21 November 2023, the FSCS has paid out

£758,725.55 in compensation to customers of WWFS. Had it not been for the

compensation limit of £85,000, the total compensation available to customers

would have been £972,197.28. In these circumstances, the Authority has agreed

with Mr Lewis that in lieu of the imposition of a financial penalty, the sum of

£26,800, be paid direct to the FSCS to contribute towards any redress due to

WWFS’s customers. This is in furtherance of the Authority’s consumer protection

objective. In light of the above, and taking into account all the exceptional

circumstances of the BSPS, the Authority has decided to publish a statement of

Mr Lewis’ misconduct for failing to comply with Statements of Principle 6 and 7.

2.18.
The Authority has found that Mr Lewis is not fit and proper to perform the SMF3

(Executive Director), SMF16 (Compliance Oversight) and SMF17 (Money

Laundering Reporting Officer) senior manager functions, as demonstrated by his

lack of competence and capability in performing the controlled functions during

the Relevant Period.

2.19.
The Authority has therefore withdrawn Mr Lewis’ approval to perform these senior

management functions and hereby prohibits him in respect of the functions set

out in this notice at paragraph 1.1(3) above.

3.
DEFINITIONS

3.1.
The definitions below are used in this Decision Notice:

“Accountable function” means an FCA controlled function that is a significant-

influence function, as set out in the Handbook at SUP 10A.4.4R;

“Act” means the Financial Services and Markets Act 2000;

“Authority” means the Financial Conduct Authority;

“Authority’s Rules” means the Authority’s Conduct of Business Sourcebook as

applicable during the Relevant Period;

“British Steel Pension Scheme” or “BSPS” means the British Steel Defined Benefit

Pension Scheme that was in place during the period 8 June 2015 to 13 December

2017;

“CETV” means cash equivalent transfer value, which is the cash value of benefits

which have been accrued to, or in respect of, a member of a pension scheme at

a particular date. The CETV represents the expected costs of providing the

member’s benefits within the scheme and, in the case of a Defined Benefit Pension

Scheme, the CETV is determined using actuarial assumptions;

“COBS” means the Conduct of Business Sourcebook, part of the Handbook;

“Compliance Officer” means Mr Lewis in the performance of his CF10 (Compliance

Oversight) controlled function as WWFS;

“Defined Benefit Pension Scheme” or “DBPS” means an occupational pension

scheme as defined by Article 3(1) of the Financial Services and Markets Act

(Regulated Activities) Order 2001, namely where the amount paid to the

beneficiary is based on how many years the beneficiary has been employed and

the salary the beneficiary earned during that employment (rather than the value

of their investments);

“Defined Contribution” or “DC” means is a common type of pension where

contributions are held in investments until the holder reaches their chosen

retirement age;

“DEPP” means the Authority’s Decision Procedure and Penalties Manual;

“EG” means the Authority’s Enforcement Guide;

“FSMA” refers to the Financial Services and Markets Act 2000

“the Handbook” means the Authority’s Handbook of rules and guidance;

“Pension Protection Fund” or “PPF” is a statutory public corporation which protects

people with a defined benefit pension when an employer becomes insolvent. If

the employer doesn't have enough funds to pay you the pension they promised,

the PPF will provide compensation instead. However, some reduction may apply;

“Pension Transfer” has the meaning given in the Handbook and includes the

transfer of deferred benefits from an occupational pension scheme (with

safeguarded benefits, such as a Defined Benefit Pension Scheme) to a personal

pension scheme;

“Pension Transfer Specialist” has the meaning given in the Handbook and includes

an individual appointed by a firm to check the suitability of, amongst other things,

a Pension Transfer, who has passed the required examinations as specified in the

Training and Competence Sourcebook, part of the Handbook (References in this

Notice to “Pension Transfer Specialist(s)” do not refer to each and every such

specialist at the Firm, and the failings of any such specialist described in this

Notice, refer only to Adviser A);

“Personal Recommendation” means a recommendation that is advice on transfer

of pension benefits into a personal pension or SIPP, and is presented as suitable

for the customer to whom it is made, or is based on a consideration of the

customer’s circumstances;

“the Principles” means the Authority’s Principles for Businesses and rules (as

applicable during the Relevant Period);

“Regulated Apportionment Arrangement” or “RAA” means the statutory

mechanism that can be used in corporate restructuring situations where a

sponsoring employer of a DBPS stops participating in the pension scheme (thereby

freeing the sponsoring employer from its financial obligations to the pension

scheme) in order to avoid insolvency, subject to certain conditions being met and

the RAA being approved by The Pensions Regulator and the PPF;

“the Relevant Period” means the period of 16 March 2017 to 14 December 2017;

“Statements of Principle” mean the Authority’s Statements of Principle and Code

of Practice for Approved Persons issued under section 64A(1)(a) of the Act;

“Suitability Report” means the report which a firm must provide to its customer

under COBS 9.4 which, amongst other things, explains why the firm has concluded

that a recommended transaction is suitable for the customer;

“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber);

“TVAS” stands for ‘transfer value analysis’ and is the comparison that a firm must

carry out in accordance with COBS 19.1.2R when a firm gives advice or a Personal

Recommendation about, amongst other things, a Pension Transfer;

“TVAS Report” means a document that reports to the customer in respect of the

comparison firms are required to carry on in accordance with COBS 19.1.2R; and

“WWFS” or “the Firm” means West Wales Financial Services Limited.

4.
FACTS AND MATTERS

WWFS

4.1.
WWFS is an independent financial adviser firm based in Llanelli, Carmarthenshire,

authorised since 12 December 2016. WWFS has permission to carry on the

regulated activities of, amongst other things, advising on Pension Transfers,

advising on investments and arranging (bringing about) deals in investments,

which it held throughout the Relevant Period.

4.2.
On 13 December 2017, the Authority visited WWFS offices. The next day,

following feedback from the Authority and at its request, WWFS applied to the

Authority to impose a voluntary requirement on WWFS, under which WWFS was

required to cease all regulated activities relating to defined benefit pension

transfer business.

4.3.
During the Relevant Period, WWFS advised 27 customers to transfer out of their

DBPS, all of whom were advised by Adviser A, who was one of the Firm’s two

Pension Transfer Advisers.

4.4.
WWFS entered Creditors Voluntary Liquidation on 23 July 2021.

4.5.
During the Relevant Period, Mr Lewis, an experienced financial services

professional, performed the CF1 (Director), CF10 (Compliance Oversight) and

CF11 (Money Laundering Reporting) controlled functions at WWFS. Currently, he

performs the SMF3 (Executive Director), SMF16 (Compliance Oversight) and

SMF17 (Money Laundering Reporting Officer) senior manager functions at WWFS.

He is a 25% shareholder in the Firm.

4.6.
Whilst Mr Lewis was not a Pension Transfer Specialist and had no previous Pension

Transfer experience, in performing his CF10 (Compliance Oversight) function, he

was, nevertheless, responsible for ensuring that WWFS complied with the

Authority’s rules and regulatory requirements applicable to its Pension Transfer

business.

4.7.
Pensions are a traditional and tax-efficient way of saving money for retirement.

The value of someone’s pension can have a significant impact on their quality of

life during retirement and, in some circumstances, may affect whether they can

afford to retire at all. Pensions are, in most cases, a primary resource for ensuring

financial stability in retirement. For some people, they are the only way of funding

retirement. Customers who engage authorised firms to provide them with advice

in relation to their pensions place significant trust in those providing the advice.

Where a financial adviser fails to conduct the affairs of their advice business in a

manner that is compliant with the Authority’s regulatory requirements, this

exposes their customers to a significant risk of harm.

4.8.
Pensions can be structured in a variety of ways. However, a DBPS is particularly

valuable because an employer sponsor carries the financial burden associated with

offering a secure, guaranteed income for life to members, which typically

increases each year in line with inflation. This is in contrast to, for example, a DC

pension scheme where employer and employee capital contributions are invested,

but the investment and mortality risk are borne by the member. The Authority

expects that for the majority of customers it is in their best interests to remain in

their DBPS because of the guarantees and protections it offers.

4.9.
Customers who engage advisers and authorised firms to provide them with advice

in relation to their pensions therefore place significant trust in them. It is

important that firms and their advisers exercise due skill, care and diligence when

advising customers regarding their pensions, ensuring that the advice given to a

customer is suitable for them, having regard to all of their relevant circumstances.

This is even more important when customers have no option but to make a

decision regarding their pension.

4.10.
Transfer out of a DBPS involves giving up the guaranteed benefits in exchange for

a cash-equivalent transfer value which is typically invested in a DC pension. If a

customer leaves a DBPS, they will have to buy an annuity to obtain a guaranteed

level of income. Alternatively, they may rely on income from investments, but

investments will have to be managed in such a way as to produce ongoing income;

and even then, there is no guarantee as to the amount or duration of that income.

4.11.
The introduction of pensions freedoms (introduced in April 2015) for DC pensions

made transferring out of a DBPS an attractive option for some people. However,

the Authority considers that, given the nature of the guaranteed benefits provided

under a DBPS, advisers’ default assumption should be that transferring out and

giving up those benefits is unlikely to be suitable for a customer unless they can

clearly show, based on a customer’s specific circumstances, that it is in their best

interests.

4.12.
During the Relevant Period, WWFS advised 28 customers on potential transfers

from a DBPS to an alternative pension arrangement. Notwithstanding FCA

guidance which created a presumption against advising a customer to transfer out

of their DBPS, 27 customers were advised by WWFS to transfer. The remaining

customer who was advised not to transfer proceeded to do so in any event, as an

insistent customer.

The British Steel Pension Scheme (“BSPS”)

4.13.
The BSPS was one of the largest DBPS in the UK, with approximately 125,000

members and £15 billion in assets as of 30 June 2017. In March 2017, the BSPS

was closed to future accruals, which meant that no new members could join it and

existing members could no longer build up their benefits. The BSPS also had an

ongoing funding deficit.

4.14.
In early 2016, various options were being explored in relation to the BSPS as a

result of insolvency concerns relating to one of its sponsoring employers. These

options included seeking legislative changes which would have allowed pension

increases available under the BSPS to be reduced to the statutory minimum levels,

and the sale of one of the sponsoring employers. However, it was concluded that

the only way to avoid insolvency would be to enter into a Regulated

Apportionment Arrangement (“RRA”).

4.15.
On 11 August 2017, the Pensions Regulator gave its clearance for the RAA. Under

the RAA, the BSPS would receive £550 million and a 33% equity stake in one of

the sponsoring employers and the BSPS would transfer into the PPF. In addition,

a new DBPS (“BSPF 2”) was proposed by the sponsoring employers in combination

with the RAA proposal. The RAA received formal approval on 11 September 2017,

which resulted in the BSPS being separated from the sponsoring employers.

4.16.
The consequences of the RAA were that members of the BSPS were required make

a choice between two options offered by the BSPS, namely to either:

a)
remain in the BSPS and therefore move into the PPF; or

b)
transfer their benefits into BSPS 2.

4.17.
Alternatively, BSPS members could take a CETV and transfer their pension

benefits into an alternative pension arrangement (for example a personal pension

scheme or another occupational pension scheme held by the member).

4.18.
On 11 and 21 September 2017, the BSPS, announced that it would separate from

the sponsoring employers. Information about the options available to members

was available on the BSPS’ website from 11 August 2017 and in October 2017,

the BSPS distributed information packs to members about these options. Members

were required to choose their preferred option by 22 December 2017. Those who

wanted to transfer their pension benefits from the BSPS to a personal pension

were required to submit the required paperwork to execute the transfer by 16

February 2018.

4.19.
The Authority has carried out significant work in response to the harm caused to

members of the BSPS from authorised firms. The Authority has taken intervention

action in the form of requirements to vary permissions to stop ongoing harm at

relevant firms and has initiated enforcement investigations against culpable firms

and individuals, of which the investigation into Mr Lewis is one. On 31 March 2022

the Authority launched a consultation paper for a redress scheme under s404

FSMA for BSPS members who suffered financially as a result of unsuitable transfer

advice. The Authority’s Policy Statement on the Consumer redress scheme for

unsuitable advice, published on 28 November 2022, estimates the average

amount lost per consumer to be about £45,000.

4.20.
The consultation paper made reference to the finding that BSPS members

experienced, and were influenced by, a set of unique circumstances. This included

the following:

a)
BSPS members were faced with making decisions critical to their long-term

financial security a very important decision on a complex issue with a tight

deadline;

b)
They generally had given little consideration to their pension prior to the

‘Time To Choose’ period commencing and therefore had little knowledge of

their options; and

c)
The scale of the exercise, and the geographical concentration of members,

meant there was difficulty in accessing accurate information and guidance

about their options.

WWFS’ Pension Transfer advice business and Mr Lewis’ role

Increase in DBPS work at WWFS

4.21.
When WWFS sought permission to provide Pension Transfer advice, it was

anticipated that the Firm would advise about one customer per month. Having

acquired that permission on 16 March 2017, WWFS advised its first customer to

transfer on 30 March 2017. Between March and July 2017, WWFS advised 8

customers in total, all of whom were advised by Adviser A.

4.22.
Over a relatively short period of time this element of WWFS’ business grew

rapidly. Between August 2017 and December 2017, WWFS advised 160 Pension

Transfer customers. Advisor A advised 104 of these 160 customers.

4.23.
WWFS was located a short distance from a Tata Steelworks plant, and this

significant increase in the volume of Pension Transfer customers was driven by

demand from BSPS members. Mr Lewis stated that from August 2017,

approximately 98% of WWFS business related to Pension Transfer work. WWFS

agreed to take on a large number of customers over a short period of time with

insufficient resource in place to manage the volume whilst complying with

regulatory standards.

The Advice Process

4.24.
Customers seeking Pension Transfer advice from WWFS met or spoke with their

adviser on several occasions. An initial meeting was undertaken at which an

introductory discussion took place about the customer’s aims and objectives, and

the options available. Customers were also provided with terms of engagement

and a standard document produced by WWFS about pensions and retirement.

Following that initial discussion, 73 customers decided not to proceed further, and

therefore did not receive advice.

4.25.
Where a customer wished to proceed, key information was then sought from the

customer to provide a basis for advice. The content of the Suitability Report and

the recommendation itself were presented thereafter, either in person or by

telephone.

4.26.
In response to the increased demand for Pension Transfer advice, WWFS’ advisers

relied increasingly on an administration team of three staff, and a paraplanner

who would undertake tasks including the preparation of TVAS documents and

Suitability Reports. Advisor A conceded (when interviewed by the Authority) that

“there may have been one or two” suitability letters prepared by the paraplanner

that they did not review, notwithstanding their responsibility for the suitability of

the advice.

Initial and ongoing transfer fees

4.27.
In most cases, WWFS charged its customers a fee of 1 to 1.5% of the value of the

transferred fund along with an ongoing advice charge of 0.5%. However, the Firm

set out the typical initial fee range of 1% to 3% for occupational pension transfers

depending on the size of the investment and the work involved.

4.28.
Of the case sample reviewed by the Authority, the total advice fees charged was

£83,578.15, with an average of £4398.85. During the Relevant Period, customer

payments for initial advice fees for Pension Transfer advice totalled £63,832.33.

4.29.
WWFS’ Terms of Engagement stated that payment would be due from a customer

if advice was given which was not followed, or if the advice was not to transfer,

albeit in the latter scenario the fee was capped at £1000. However, it was

understood in practice that unless the transfer was complete, no fee would be

paid by the customer.

4.30.
WWFS offered three tiers of ongoing advice service with different prices. WWFS

set out the precise fees to be charged to the customer for the advice and offered

several methods of how payment could be taken. Most customer files reviewed

by the Authority showed customers opting to have payment taken from the

invested fund.

4.31.
All 19 files assessed on behalf of the Authority reflected the fact that the customer

had opted for an ongoing review service for which the pension holder would be

charged. Whilst the ongoing advice charge was an optional service for customers,

were it for the Authority’s intervention, the sharp rise in WWFS’ Pension Transfer

customers over this period would have translated into future additional income

from this service for WWFS.

Mr Lewis’ Responsibilities as WWFS’ Compliance Officer

4.32.
Given the high volumes of Pension Transfer advice being provided by WWFS, in

particular from August to December 2017, it was important that WWFS took

appropriate steps to verify the quality of advice being provided to customers. This

included establishing and maintaining adequate policies and procedures sufficient

to ensure the Firm’s compliance with its obligations under the regulatory system,

including compliance with Pension Transfer rules.

4.33.
As CF10 (Compliance Oversight), Mr Lewis had responsibility for oversight of the

Firm’s compliance with the Authority’s rules.

4.34.
WWFS’ Compliance Plan recorded Mr Lewis’ job title as Compliance Director and

listed his controlled functions as including, amongst others, CF10 (Compliance

Oversight). Under the heading “The Compliance Plan” it stated that:

“Compliance in general is ensuring quality throughout the business

operation. This in particular means concentrating on the quality of the sales

process to ensure that investor protection is given the very highest priority

and that consistent high standards are set.” [Emphasis added].

4.35.
Under the heading “Compliance Officer” it stated that:

“The Compliance Officer is responsible for ensuring the firm meets its

Regulatory responsibilities in respect of its regulated activities. This

responsibility includes ensuring the Compliance Plan is adopted and adhered

to by the firm.”

4.36.
Under the heading “Compliance Officer’s Responsibilities” it recorded these as

including, amongst others:

-
Identifying, interpreting and allocating regulatory responsibilities;

-
Designing or approving procedures whereby the requirements of

individual obligations are met, and thereafter supervising the

implementation and maintenance of such procedures;

-
Maintaining the documentation which records the means by which

regulatory obligations are to be met;

-
Carrying out and reporting upon an ongoing monitoring programme to

assess the effectiveness of compliance procedures, including a review

of the business written by the firm; …

4.37.
Under the heading “Monitoring: Quality of advice reviews” it observed:

“Details are contained in the T&C Plan. This follows good practice to have

regular and ad hoc checks on the quality of advice, which details how this

will be carried out.”

4.38.
The Compliance Plan also prescribed the gathering of relevant management

information relating to the Firm’s advisers to the Compliance Officer in accordance

with its Training and Competency Plan.

4.39.
In interview, Mr Lewis explained that he saw his duties as CF10 (Compliance

Oversight), in relation to his oversight of Pension Transfer advice, as:

“Checking what was in the file corresponded with what was on the checklist

and making sure that what was in the [transfer analysis document], or

whatever, was also in the suitability report.”

4.40.
Mr Lewis confirmed he did not carry out regular reviews of systems and controls,

management information reviews, monthly one-to-one meetings or quarterly

observed calls, all of which were required of him, as CF10 (Compliance Oversight),

under the Training and Competence Plan. Mr Lewis had no hand in designing the

advice process itself.

4.41.
In interview, Mr Lewis stated, however, that from the end of September 2017, he

was reviewing ten DBPS files every week, with each file taking him two to three

hours to complete, and that he was working regularly at weekends in order to do

so.

Mr Lewis’ responsibilities as a CF1 (Director)

4.42.
Mr Lewis also had certain responsibilities in the performance of his CF1 (Director)

function. This was also reflected in the Compliance Plan under the heading

“Treating Customers Fairly” (“TCF”), which recorded that all those performing

senior management functions were responsible for ensuring that WWFS complied

with TCF desired outcomes:

“The Principals and any other senior management will be responsible for

ensuring that the 6 Principals of treating customers fairly are embedded

throughout its practices and procedures.”

4.43.
Those TCF desired outcomes included “where consumers receive advice, the

advice is suitable and takes account of their circumstances.” To ensure that this,

and the other TCF objectives were met, the Compliance Plan stated that “Treating

customers fairly will be a discussion and review point at appropriate meetings

within the firm. These meetings will be documented to demonstrate an audit trail

of TCF driven practices and support the adoption and continued good practice

within the firm.”

Mr Lewis’ approach to Pension Transfer advice

4.44.
Although not a Pension Transfer Specialist, Mr Lewis’ approach to providing

Pension Transfer advice was misguided and placed undue weight on certain

factors, this was material to his reviews of DBPS files because he stated that he

would look at the files and consider, “would I have done it myself.”

4.45.
In interview, Mr Lewis said that advisers should start from the position that a

Pension Transfer would not be suitable for a customer, and that the adviser then

had to build up the evidence as to why they would be recommending that it was

suitable.

4.46.
Nevertheless, as every instance of Pension Transfer advice given by WWFS, save

one, was to transfer, the case for doing so was almost always made out. This

should have led Mr Lewis to challenge the Pension Transfer advice being given on

behalf of the Firm.

4.47.
In interview, Mr Lewis stated, “So you have to weigh up what each client’s got

different reasons, but most of the Tata Steel guys have the same blinking reason

[to transfer out], they just wanted to get out of the industry when they were 60.”

This wrongly conflated these customers’ wish to leave the industry with their need

to complete a Pension Transfer. Further, Mr Lewis contrasted the penalties

imposed on early retirement under BSPS2 with the absence of reductions under

the BSPS. This approach focused on the difference between the terms, rather than

assessing whether BSPS 2 could have better provided for the customer, in all the

circumstances, in their retirement than the other options.

4.48.
Mr Lewis’ views about the security of the fund affected his approach to Pension

Transfer advice which was, he said, also heavily influenced by the views and

feelings of an individual BSPS trustee which had been expressed privately to him.

Mr Lewis and WWFS more generally should, however, have approached any advice

objectively and acted in the best interests of the individual customer. It was also

WWFS’ responsibility to objectively explain to customers the strength of the BSPS

and the protection the PPF offered by way of guarantees.

WWFS’ compliance arrangements

4.49.
It was the responsibility of Mr Lewis, as Compliance Officer, according to WWFS’

policy, to obtain sufficient Professional Indemnity Insurance to cover the Firm’s

Pension Transfer advice. Mr Lewis has been unable to demonstrate that the Firm

had this insurance cover during the Relevant Period.

Small proportion of Pension Transfer files checked by a qualified Pension Transfer

4.50.
WWFS’ policy was that pension areas such as advice on SIPPs, income drawdown

and Pension Transfers were high risk areas of work which required all files to

undergo a quality assurance review.

4.51.
Although he was not a qualified PTS, Mr Lewis reviewed most of the DBPS files

prepared by Adviser A, with the others (8 files) reviewed “randomly” by the Firm’s

other Pension Transfer Specialist. The only record of these reviews having taken

place, as well as their outcomes, being the “Notes” column of WWFS’ Defined

Benefit Spreadsheet. The Authority has not seen any completed sample review.

4.52.
During the Relevant Period, Mr Lewis undertook 20-30 hours of Pension Transfer

file review work each week. At the same time, as Compliance Officer, he retained

responsibility for all advice given by WWFS’ 18 advisers, across all other areas of

their work. The fact that his Pension Transfer file reviews (which did not assess

suitability) took up so much time should have raised questions about volume and

quality of the work being produced by a single adviser.

4.53.
None of Pension Transfer Specialist’s reviews were of cases forming part of the

sample reviewed by the Authority so the quality of the reviews cannot be

assessed. Although all these files passed the review, all of them required remedial

action. Issues identified in these files included Risk Profile Questionnaire errors,

fact find errors and report errors. Mr Lewis was aware of:

a)
the high volume of pipeline work;

b)
the relative inexperience of Adviser A;

c)
large numbers of files requiring remedial work; and

d)
his own limitations on his ability to review files.

There was therefore a heightened risk regulatory standards may not have been

met.

Internal Reviews did not assess suitability of advice

4.54.
As Mr Lewis was not a Pension Transfer Specialist, the reviews he undertook could

not assess the suitability of the advice given by the advisers. Adviser A advised

on 27 transferred cases, and 85 pipeline cases. Only 8 of these were internally

reviewed by the Firm’s other Pension Transfer Specialist.

4.55.
Mr Lewis used a script he obtained from his previous employment at another

authorised firm to conduct file reviews. In interview he stated that, “So I just

followed the script, they gave us a process to follow. And the process was exactly

the same as that [they] followed, so I just followed what it said on the script”. He

stated that it was designed to ensure that “everything was on that file.”

4.56.
Mr Lewis would complete the script by selecting ‘yes, no or not applicable’ against

the relevant information and notify the adviser if anything was missing. Mr Lewis

would also check for consistency as between documents in a file and indicate

mistakes within the documentation, such as where an error had been made

regarding the customer’s date of birth. He did not make corrections or suggestions

concerning the recommendation itself.

4.57.
A second checklist document was later used to guide the Pension Transfer reviews

following external compliance feedback. There was no document which assisted

with a qualitative assessment of the advice and there were no routine oversight

assessments.

Poor Response to External Reviews

4.58.
Following discussion with the Authority, WWFS engaged external compliance

consultants to provide ongoing compliance advice to assist Mr Lewis in discharging

his compliance obligations. The consultants were asked, in March, April and

August 2017 respectively to undertake reviews on three DBPS files on which

Adviser A advised. In each case, significant failings were identified. These failings

included:

a)
failures to capture information around expected expenditure in retirement;

for example, one file review stated it was difficult to tell if the client could

afford the pension transfer;

b)
unclear customer objectives; one file stated it was unclear why the client

had a need to repay their debts;

c)
the risk of the investment not matching the customer’s capacity for loss;

clarification was needed to address the discrepancy between capacity for

loss and attitude to risk;

d)
inaccurate illustrations and models; for example, early retirement and

commutation factors were incorrectly stated and the CETV was out of date

and therefore should not be used;

e)
numerical errors; and

f)
a failure to explain why the transfer met needs in the Suitability Report. For

example, the need of one client to repay the mortgage was not

demonstrated given a large monthly income surplus.

4.59.
None of these customers were transferred out of their defined benefit scheme

before the VREQ was submitted. At the time, Mr Lewis was of the view that

sending these files fulfilled his duty as CF10 (Compliance Oversight). The findings

of the external compliance consultant’s reviews are consistent with the findings

of the Authority’s customer file review.

4.60.
The three reviews by the external consultants were sent to Mr Lewis in the first

instance. Mr Lewis stated that he met with Adviser A to discuss the review and

what further action was needed. Adviser A then undertook the additional work

which was presented to and checked by Mr Lewis. Despite all three cases not

demonstrating the suitability of the advice, no further cases were submitted to

the external consultant for review and the amended files were not re-submitted.

4.61.
Mr Lewis instead created the submission checklist in response to the reviews

which he used to check the work of the advisers. No other external compliance

service was used, and no further measures were put in place at WWFS in response

to the consultants’ feedback.

4.62.
Given that Mr Lewis was not qualified to give Pension Transfer advice, devising a

checklist, when the Firm failed to demonstrate suitability on all three files

submitted, was an insufficient response. It failed to engage with the substance of

the analysis. The fact that no further files were submitted for external review after

the findings of the three reviews, and after the checklist was implemented, meant

that Mr Lewis had no way of reasonably satisfying himself that his advisers’

recommendations were now compliant, following these amendments to the

checklist.

Inadequate response to increase in Defined Benefit advisory work

4.63.
Adviser A qualified as a Pension Transfer Specialist in January 2016 and was

therefore relatively inexperienced in giving advice on these matters. She had only

advised on a small number of Defined Benefit files prior to joining WWFS. Between

March and July 2017, WWFS advised 8 customers in total, all of whom were

advised by Adviser A. Over a relatively short period of time, this element

of WWFS’s business grew rapidly as a result of the influx of BSPS customers

seeking advice. Between 1 August 2017 and 14 December 2017, WWFS advised

160 Pension Transfer customers. Adviser A advised 104 of these 160 customers.

4.64.
Mr Lewis acknowledged that he had expected “maybe half a dozen [Pension

Transfer matters] a year, if that” but the work, “snowballed” and “got out of

control”. Mr Lewis did not send any additional files for review during this period,

despite Mr Lewis’ being aware of the deficiencies in Adviser A’s Pension Transfer

advice, as identified previously by the external compliance consultants.

4.65.
Nor did Mr Lewis take any action to reduce the amount of Defined Benefit work

being handled by Adviser A, and no additional support was offered by the Firm.

4.66.
There was no obligation on the Firm to advise all the customers who approached

it. But it was left to the Pension Transfer Specialists themselves to take steps to

prevent the administrative staff from continuing to book in appointments in such

significant numbers. Mr Lewis stated that; ‘I should have told [Adviser A and the

other Pension Transfer Specialist] to, ‘Hang on, this is not acceptable, the level of

business, you know? [...] I should have what you said – ‘Come on guys, this is

getting out of hand. Limit it to one or two’, you know?’

The Authority’s Review of Adviser A’s advice

4.67.
The Authority visited and reviewed the processes of firms active in the defined

benefit pension transfer advice market. WWFS was visited and assessed and a

sample of its advice was reviewed and found to be deficient. In particular:

a)
the rationale for customer objectives of control and flexibility was not

demonstrated;

b)
the customer stated they lost faith in Tata Steel and wanted to retire early

without evidence of WWFS exploring BSPS2 or the PPF; and

c)
the rationale for transfer was heavily replicated between customer reports.

4.68.
The Authority then requested and assessed a further 19 files against the

applicable rules found in the Authority’s Conduct of Business Sourcebook (‘COBS’)

relating to suitability. All of these customers were part of the completed defined

benefit transfers. All but two customers were former BSPS scheme members.

Results of the File Review demonstrated:

a)
a failure to collect the necessary information to give pension transfer advice

in 68% of cases, with the consequence that in 21% of total cases the

Authority was unable to assess whether the firm’s advice was suitable (see

“Information collection” below);

b)
that the Firm gave unsuitable pension transfer advice in 53% of cases

(giving suitable advice in 26% of cases) (see “Unsuitable pension transfer

advice” below); and

c)
that the Firm gave unsuitable investment advice in 21% of cases (see

Unsuitable investment advice” below.

4.69.
Nine of the 10 of the customers who received unsuitable advice were members of

the BSPS. The average transfer value for the customers within the reviewed files

who received unsuitable transfer advice is £393,006. The majority of customers

in the sample had transfer values similar to this figure, with the range being

£86,294 - £600,172.84. Most customers had some small cash savings or

investments with limited alternative pension provision. BSPS customers had

benefited from the replacement DC Aviva scheme which commenced shortly

before the advice was provided, and some customers, or their partners, had

separate modest pensions. In several files, the customer had informed the adviser

that they would have to draw upon the fund if they required unplanned access to

cash. In all BSPS cases, the transfer value supplied was the most significant asset

by some measure. This demonstrates the importance of ensuring the suitability

of the advice as the funds were ultimately central to the customer’s finances and

quality of life in retirement. The customers had limited buffer from financial strain

and could not be described as financially resilient.

4.70.
The overarching suitability requirement, in COBS 9.2.1R, is for a firm to take

reasonable steps to ensure that a personal recommendation (which includes, in

this context, a recommendation to transfer or not to transfer a pension) is suitable

for its customer. To do so, a firm must obtain the necessary information regarding

the customer’s (a) knowledge and experience in the investment field relevant to

the pension transfer; (b) financial situation; and (c) investment objectives (COBS

9.2.1R(2)(b)). Making a personal recommendation without the necessary

information increases the risk of actually providing unsuitable advice.

4.71.
If a firm does not obtain the necessary information to assess suitability, it must

not make a personal recommendation (COBS 9.2.6R). The Authority’s review of

19 customer files found that in four cases, the file contained insufficient

information such that the adviser should not have made a recommendation as a

full assessment could not be made. This therefore put the customer at risk of

receiving unsuitable advice. In all four cases, there was a failure to capture

retirement need and spousal pension or other income entitlement making

assessment of reliance on the fund impossible.

Failure to Gather Income and Expenditure in Retirement details

4.72.
There was a pervasive failure to obtain and discuss the customer’s income need

and expenditure in retirement including the basic cost of living, lifestyle

expenditure and discretionary expenditure; 15 of the files did not include full

retirement need/expenditure details. The fact find form used did not have a

section inviting this information. Consequently, the adviser was not able to project

how the defined benefit pension would be used by each customer in retirement.

4.73.
Further, there was a common failure to clearly capture customer and spouse state

and additional pension details. For example, in the case of Customer A,

information about the customer’s spouse’s Halifax pension were not on file and

her entitlement to a state pension had not been established. Without this

information, the adviser was not in a position to determine the level of reliance

on the Defined Benefit Pension Scheme, or evaluate whether this potential

resource could be used to achieve customer objectives.

Failure to Gather Information on the Customer’s Financial Situation

4.74.
Information about a customer’s wider financial situation, including their additional

resource and current expenditure details, is key to assessing the extent of their

reliance on the income provided by their Defined Benefit Pension Scheme, and

their capacity for loss. This failure was seen across 6 cases which the Authority

was able to assess (plus four cases not capable of assessment) in which

information as to the source and extent of the customer's regular income, their

assets including liquid assets and their regular financial commitments (COBS

9.2.2R(3)) was missing.

4.75.
The way the failure to accurately capture detailed financial information can affect

the suitability of advice is seen in the case of Customer B, who had the objective

of repaying their mortgage by age 55. However, no assessment had been

undertaken of the outstanding mortgage at that age and the customer was

considering re-mortgaging, potentially making the objective redundant. The

adviser was therefore not able to assess whether it might be possible to repay the

mortgage by other means, nor how much of the pension scheme might be needed

to do so. Proper assessment of the customer’s Aviva pension had not been

undertaken. No information on the customer’s spouse’s pension provision, of any

sort, was recorded. Therefore, assessment of how these potential assets could

meet the customer’s stated objectives has not taken place.

4.76.
Customer objectives were often recorded in a generic way suggesting a

standardised templated approach. Common examples of non-specific objectives

include controlling access to pension benefits, avoiding the funds going into the

PPF and to pass benefits to family on death. There was little evidence on files that

the stated objectives of the customers were properly explored, scrutinised and

challenged by the adviser to ensure they were appropriate and achievable,

particularly the desire to retire early. The underlying reason for the customer

objectives, was not always recorded meaning the driver for transfer could not be

assessed; alternative means of achieving the aim or the appropriate importance

to attach to the objective cannot be evaluated.

4.77.
Adviser A stated in interview that, ‘I’ve looked back at the files, and I can see that

even though I had conversations, that I should’ve documented it far better at that

time than when I look back,’ The Authority expects that advisers should have kept

full and accurate records and should have been able to demonstrate the suitability

of the transfer on the content of the file.

4.78.
The overarching suitability requirement (COBS 9.2.1R) is for a firm to take

reasonable steps to ensure that a personal recommendation (which includes, in

this context, a recommendation to transfer or not to transfer a pension) is suitable

for its customer.

4.79.
The starting point for pension transfer advice is the guidance in COBS 19.1.6G(3)

(or, from 8 June 2015 to 1 April 2018, in COBS 19.1.6G) that a firm should only

consider a transfer, conversion or opt-out to be suitable if it can clearly

demonstrate, on contemporary evidence, that the transfer, conversion or opt-out

is in the customer’s best interests. These provisions indicate that if the firm cannot

clearly demonstrate this, then it should assume the transaction will not be

suitable. In the worst scenarios, a loss of guaranteed benefits equates to severe

customer harm, surrendering a primary resource for ensuring financial stability in

retirement or, alternatively, commencing retirement.

4.80.
The Authority’s File Review of 19 customer files found that 10 customers (53%)

received unsuitable transfer advice. Of these, all but one (90%) were former BSPS

members. The advice given to transfer was unsuitable for a variety of reasons

(see below). Many files failed for multiple reasons.

Reliance on the Defined Benefit Scheme and Inability to Bear Transfer Risk

4.81.
The customer was assessed as being reliant on the defined benefit scheme in all

10 cases which contained unsuitable transfer advice. These customers did not

have significant assets which could be used to supplement any shortfalls in their

income needs. The customer is reliant on income from the defined benefit scheme

in retirement if it their primary income source with no capacity to bear the risk of

losing it; for example, because without it they would be unable to meet non-

discretionary expenditure. The firm’s advice to transfer out exposed these

customers to a risk of not being able to meet their income needs throughout

retirement because their income would be dependent on the performance of the

recommended investment. The Authority considers that the firm did not have a

reasonable basis for believing that these customers could financially bear any

investment risks related to the Pension Transfers recommended in their cases.

4.82.
In 5 cases, the firm recommended transfer away from the defined benefit scheme

when there was insufficient evidence to suggest that the customer could bear the

transfer risk. There was a pattern of the firm not completing a detailed

sustainability analysis to illustrate the potential for customers to run out of

money; rather this was dealt with by way of a warning or illustration which lacked

context, analysis or adequately reflected how the customer wanted to access the

fund.

4.83.
Customer D was 53 and married at the time of the advice and was due to start a

new job. Although the customer had another pension, the fund under

consideration was her only defined benefit pension. She wanted to retire at 60

and provide her family with a lump sum on her death. Information concerning the

customer’s long-term expenditure was not obtained by Adviser A. Customer D

had no investments and had £2000 in savings. She had little financial experience,

appearing to spend the net household income on living expenses. Customer D‘s

financial situation was such that she could not withstand losses.

a)
although the customer and her spouse had other pension provision, the

Suitability Report warned that the customer would deplete the fund in her

70s. Without retirement need captured, it is likely the customer is reliant on

the DB income given the level of expenditure;

b)
the firm has not demonstrated the basis for believing that the customer is

able financially to bear the risk of transfer consistent with their objectives.

The objectives of providing for her family with a lump sum on her death may

have come at the expense of giving up guaranteed income; and

c)
the customer’s aim of retiring at age 60 has not been assessed for

affordability, without the capture of retirement expenditure information. It

therefore cannot be demonstrated that transfer out is in the best interests

of the customer.

Lack of Evidence to Support Customer Objectives

4.84.
The firm failed to provide sufficient evidence to demonstrate that specific

objectives, for example family benefits on death flexibility maximising tax-free

cash and protecting the pension fund from decrease in value which drove the

transfer were in the customer’s best interests. This was seen in all 10 cases

assessed by the Authority as being unsuitable for transfer.

4.85.
As the primary purpose of a pension is to meet the income needs of an individual

in retirement, when maximising the customer’s death benefits or the flexibility of

alternative arrangements is treated as a high priority, there is an increased risk

that this is at the expense of the primary purpose. There may therefore be a

trade-off that must be resolved in the best interests of the customer given their

circumstances (COBS 9.2.1R(1) and 9.2.2R(1)(b)). The file review uncovered

examples of where this tension was resolved in favour of transfer, but where the

firm did not demonstrate why this was the case. For example, this may occur

where the customer has expressed a desire for flexibility without any need being

tested or weighed against countervailing factors. Instead, the adviser set out, in

generic terms, the customer’s acceptance of the disadvantages of transfer, such

as lower pension income and increased risk, and the customer’s supposed good

level of knowledge of their options, risk and investments. This had the following

effects:

a)
it was incorrectly implied that the customer, from an informed and

knowledgeable position was responsible for the advice (not the decision) to

transfer out; and

b)
there was a failure to analyse and present findings of how the tensions were

resolved.

4.86.
In addition, the aim of the customer may be pursued under a misapprehension.

When the customer expressed a need to transfer to protect the fund (for example

because of concern about the PPF taking over) the firm has a responsibility to

explore whether the concern is legitimate and ensure the customer is properly

informed. Instead, when explaining the reasons for the recommendation, the

adviser repeated the customer’s views on the instability of the ceding scheme and

stated, in BSPS cases, that the scheme was under-funded.

4.87.
The File Review revealed that sections of the Suitability Reports for BSPS

members were very similar, often stating that the customer had the objectives of

wanting their pension reviewed along with control and flexibility. Similar vague or

templated wording was also seen in the section listing the reasons for the

recommendation. Instead of engaging in an assessment of transfer, the reasons

for transfer sometimes consisted of different ways of restating the desire for an

objective, or made general assertions without personalisation such as, ‘the current

scheme rules do not allow you to take full advantage of new pension freedom

rules…’ Adviser A accepted that she should have ‘formulated [the reasons] in a

different way’. In some cases, the real driver for transfer was not articulated in

the Suitability Report at all, and the adviser accepted that they would have ‘gone

down a different route’ with the customer if giving advice again.

Lack of necessary attitude to transfer risk and knowledge and experience

4.88.
WWFS was obliged to obtain information on the customer’s preferences regarding

risk taking and their risk profile (COBS 9.2.2R) to ensure that the customer was

prepared to exchange the guaranteed benefits of the defined benefit scheme for

non-guaranteed benefits which are subject to investment risk borne by the

customer. WWFS was required to obtain sufficient information to provide a

reasonable basis for believing that the customer had the necessary experience

and knowledge to understand the risks involved in the transfer (COBS 9.2.3R).

4.89.
The adviser failed to demonstrate the customer had sufficient knowledge to

understand the risks of transfer in 6 cases. Despite the fact find form prompting

asking for detail around current and previous investments, the firm often recorded

only that the customer had little experience but some understanding without

expending or explaining how this satisfied the guidance. Where the customer had

asserted a level of knowledge when their occupation and investments suggested

this was not the case, there was no evidence of the adviser challenging or

scrutinising these answers on file. The adviser relied on her own impression of the

customer’s intelligence even when the customer had no investment experience at

all, with very limited savings yet, post-transfer, went on to manage the pension

himself. This exposed the fund to significant risk.

4.90.
In 5 cases, the customer did not have the necessary attitude to transfer risk.

Customer files lacked evidence of discussions around risk, depletion of the fund

and customer responses/rationale as regards their views. Nothing could be

gleaned from customer backgrounds owing to lack of investment experience.

WWFS failed to properly evaluate the attitude to risk questionnaires. The adviser

stated that the answers provided by the customer were a tool to prompt

discussion, and that the outcome of that discussion could have been better

documented. It was accepted that the answers were not used to assess whether

the customer had an appetite to give up guarantees offered by Defined Benefit

schemes, and that, with hindsight, they should have been used in that way. Where

a customer had stated that they wanted a guaranteed rate of return rather than

uncertainty, this should have been a clear signal that the customer enjoyed the

guaranteed benefits of the Defined Benefit Pension Scheme. Low/medium risk

profiles within the sample suggested a preference for safe returns.

Transfer analysis not supportive of transfer

4.91.
In order to provide pension transfer advice, WWFS was obliged to carry out a

comparison between the benefits likely to be paid by the ceding scheme with the

benefits afforded by a personal pension. The ‘TVAS’ document facilitates this

comparison as required by COBS 19.1.2R(1). The main output from this document

is a series of percentages, known as “critical yields” (CYs). These illustrate the

annual growth rate (net of charges) that the customer would need to obtain on

an investment of the CETV in order to replicate the benefits provided by the

scheme. The firm must ensure that the comparison included enough information

for the customer to be able to make an informed decision, drawing the customer's

attention to factors that both support and detract from the firm’s advice.

4.92.
The firm failed to follow this guidance in 7 cases. The adviser failed to fairly

present the comparison or take into account the customer’s objectives so as to

make the comparison useful for the customer. Common errors include calculating

the comparison to the wrong retirement age, and not reflecting a desire to take

tax-free cash. Where calculated to a higher retirement age than desired by the

customer, the critical yield figure will be lower, suggesting the receiving fund does

not need to perform as well. Critical yields, where correctly calculated in these

cases, were so high as to be unlikely to be achieved and exceeded what was likely

to be achieved with the customer’s attitude to risk grading.

4.93.
WWFS failed to explain why despite the required growth rate, transfer was in the

best interests of the customer. 17 suitability reports stated that, ‘Even though it

is unlikely the critical yield required to match the benefits that could be provided

by your existing defined benefit pension can be achieved, I have still

recommended that you transfer for all the other reasons stated’ As stated above,

the other reasons were often not personalised.

Customer Objectives can be met by the Defined Benefit Scheme

4.94.
The firm recommended transfer away from the ceding scheme in circumstances

where the customer had the objective of early retirement or had stated a

preference for guaranteed returns, when this could be met by the current

arrangement. When transfer away from the scheme is not necessary to achieve

customer objectives, or results in the loss of a benefit which is important to the

customer, the risk materialises that transfer is not in the customer’s best

interests. This was the case in 4 customer files reviewed by the Authority.

4.95.
All cases that failed the assessment for suitability of transfer advice were found

to have fallen below the standard set by the Authority in more than one way.

4.96.
For example, Customer E was married and a BSPS member with gross salary of

£40,000 per annum. The customer had a DB from nearly 37 years pensionable

service. The customer also had access to a DC workplace arrangement that they

joined in April 2017 and was eligible for full state pension from age 67. The couple

owned their own home, valued at £70,000, with no mortgage. There were no

investments recorded but they had joint savings of £22,000. Their combined

expenditure was recorded as £1,157.45 per month. No expenditure in retirement

figures had been captured by Adviser A:

a)
the adviser recommended transfer out when there was strong reliance on

the BSPS, particularly between early retirement and state pension age;

b)
no sustainability assessment was completed showing how their lifestyle

could be affected by transfer, or how crystallising some of the benefits in an

unplanned way may impact the funds over time. The adviser did not show

the customer could bear the risk of transfer;

c)
the need for flexibility is not self-evident, explained or scrutinised in the file;

d)
despite the customer’s concern about the fund reduction on entering the

PPF, the receiving scheme would have to achieve a critical yield of 6.6% to

match these benefits which was a challenge for the lowest medium’ attitude

to risk rating. The critical yield to match the BSPS’ benefits was 12%

(without tax-free cash taken) and highly unlikely to be achievable given the

risk profile; and

e)
the customer’s only investment experience was entering into his employer’s

new DC scheme shortly before the advice, such that was nothing to suggest

he would understand the risks noted above.

Unsuitable investment advice

4.97.
The Suitability requirement in COBS 9.2.1R extends to the investment into which

the firm has recommended the customer should transfer his or her pension funds.

Just as the adviser must ensure the customer can bear the transfer risk, so they

must ensure that there is a reasonable basis for believing that the customer can

bear the risks associated with the chosen investment (COBS 9.2.1R(1)(a) and

COBS 9.2.2R(1)(b)).

4.98.
The customer will routinely be asked to complete a risk profile questionnaire which

helps the adviser understand the customer’s attitude to investment risk and their

capacity for loss. The Authority has reviewed examples where the answers

provided in this questionnaire by the customer do not match up with the risk

associated with the recommended fund. Connected to this is where the customer

did not have the capacity to bear the investment risk, in circumstances where

there was a lack of additional resource should there be a drain or fall in the fund.

The make-up of the underlying funds, particularly the equity content, was seen

not to be consistent with the customer’s ability to cope with risk. This was

particularly egregious where the customer lacked the knowledge and experience

to understand the risks involved in the investment.

4.99.
Customer F was 52, a married full-time worker for Tata Steel, earning £47,000

per annum. The couple were renting, had £2500 in savings and had no other

investments, though the customer was entitled to full state pension and a small

Defined Contribution (DC) pension started in 2017.

a)
the customer was assessed as ‘lowest medium’ attitude to risk and none of

the risk profile questions around risk were answered positively by the

customer. The risk grading was inappropriate for a risk averse customer;

b)
at least 46% of the underlying fund was to be invested in equities. This was

not aligned with the customer’s attitude to risk or capacity for loss. A fall in

the value of the fund would materially affect the customer’s retirement

finances given the level of reliance upon it, particularly before state pension

age; and

c)
the recently commenced DC scheme was the customer’s only recorded

experience of investments such that was no evidence to suggest the

customer was positioned to understand the level of risk he was taking on.

Poor Quality Communication with Customers

4.100. The Authority’s Rules about the provision of information to customers ensure that

consumers have all the necessary information to make an informed decision and

are, ultimately, treated fairly. WWFS failed to comply with the Authority’s Rules

in 15 (79%) of cases reviewed.

4.101. Across the files reviewed, objectives, priorities and recommendations were often

replicated with little tailoring to the customer’s circumstances.

Suitability Report failures

4.102. The firm was obliged to provide each of its Pension Transfer advice customers

with a Suitability Report. The firm was obliged to set out in the report, as a

minimum, the customer’s demands and needs; why the firm had concluded that

the transfer was suitable for the customer having regard to the information

provided by the customer; and any possible disadvantages of the transaction for

the customer. In other words, the report was a written record of the customer’s

circumstances and the adviser’s Personal Recommendation and the reasons for it.

4.103. The Authority has observed a pattern of the adviser making broad assertions

about the option of transferring out as compared with the alternatives which do

not bear scrutiny; for example that the scheme is underfunded without discussion

of the implications, the other options ‘cannot accommodate your needs and

objectives’ without explanation or that ‘you are likely to receive a higher income’

after transfer when this is contradicted by the warning that the customer is

accepting ‘a lower income in exchange for flexibility. The section explaining the

reason for the recommendation was highly templated across the files with little

personalisation. Mr Lewis stated that, ‘they are higher level general statements…

Maybe they should have put something in there which was more personal to that

particular client.’ The report therefore fails to meet the fair, clear and not

misleading requirements of COBS 4.2.1R with important elements of the rationale

for transfer being highly templated.

4.104. The effect of these incorrect assertions is exacerbated where the report did not

engage in meaningful assessment of the alternatives to transfer, explaining why

transfer is in the best interests of the customer. Some customers have not been

told that aims and objectives, particularly early retirement, could be met within

the scheme or its replacement and therefore the firm has failed to explain why

the recommendation is suitable (COBS 9.4.7R(2)). In fact, some reports are

worded so as to misleadingly imply that that early retirement is only an option on

transfer by stating that it helps ‘take benefits before your normal retirement age’

when early retirement would always have been available as an option for those

BSPS members who went into the PPF.

4.105. When challenged in interview in relation to one customer, Adviser A explained

that the customer would be using the fund to ‘plug gaps…over and above normal

expenditure’. Although flexibility was mentioned as a reason for the

recommendation, it was not explained or evidenced that in her assessment, the

customer would not be reliant on the fund. This was a missing piece of key

information, without which, the advice could not be understood. Adviser A

accepted that, ‘I have fallen down on the…to be able to adequately articulate this

in writing’.

4.106. Some reasons given for rejecting an alternative are not justifiable and seen across

several files, for example, where the workplace DC scheme was ruled out because

the customer wanted guidance on drawing benefits in the future, or where a life

assurance policy was rejected to improve death benefits due to a unrecorded

objective to reduce monthly expenditure.

4.107. Some reports were deficient in their drafting. They included incorrect information,

repetitive content and complex tables, jargon and projections with little

engagement with actually explaining to the customer how the options might meet

their income retirement needs. Furthermore, WWFS failed to disclose information

that would assist the customer in understanding their options, for example, where

the report did not show the Critical Yield to the customer’s preferred retirement

date for the PPF so that a straightforward comparison could be made between the

recommended fund and the default option. The presentation of information is

contrary to the requirements in COBS 4.2.1R for the report to be clear and in

COBS 19.1.2R for the firm to take reasonable steps to ensure the customer

understands the advice and comparisons.

4.108. WWFS must take reasonable steps to ensure that the customer understood

transfer analysis report. This was important, given the limited knowledge and

experience of many of the customers the sample. Where files did not demonstrate

that this was the case, there is a risk that the customer followed the advice without

understanding how transfer compared with what they were giving up. This was

seen in 8 cases. The reports included numerous tables with various yields and

retirement ages, making the significance of the outcome hard for the customer to

understand, particularly when the this was not addressed clearly in suitability

reports.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

5.2.
The Authority finds that, during the Relevant Period, by reason of the matters

described in section 4 of this notice, Mr Lewis breached:

a)
Statement of Principle 6, in that he failed to exercise due skill, care and

diligence in managing the business of the firm for which he was responsible

in his CF10 (Compliance Oversight) function; and

b)
Statement of Principle 7, in that he failed to take reasonable steps to ensure,

in respect of his performance of the CF10 (Compliance Oversight) function,

that WWFS complied with Principles 6 and 9 of the FCA’s Principles for

Businesses, and COBS 2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R, as a

result of the deficiencies in the Firm’s Pension Transfer recommendations.

5.3.
In particular, in breach of Statement of Principle 7, Mr Lewis failed to take

reasonable steps to ensure that:

a)
Each of the Pension Transfer Specialists working for the Firm obtained the

necessary information about the customer;

b)
Each of the Pension Transfer Specialists working for the Firm properly

assessed, on the basis of the information obtained, or gave due

consideration to, whether the recommendation was suitable for the

customer and in their best interests. In particular, Adviser A, one of WWFS’

Pension Transfer Specialists failed properly to assess:

i.
whether the customer was reliant on the income from their DBPS and

whether they could financially bear the risks involved in a Pension

Transfer;

ii.
whether the aims which drove the Pension Transfer recommended

were in the best interests of the customer;

iii.
whether alternatives to a Pension Transfer could meet the customer’s

needs;

iv.
whether the customer had the appropriate knowledge, experience and

attitude to transfer risk;

v.
whether the transfer analysis supported a recommendation to

transfer out of the ceding scheme; and

vi.
whether the receiving fund was suitable for some customers.

c)
the documentation issued to customers demonstrated the rationale for

transfer, was easily comprehensible and error-free.

5.4.
The failures set out at paragraph 5.3 (a)-(c) above resulted from Mr Lewis’ failure

to take the following reasonable steps:

a)
undertake
any
management
information
analysis
regarding
the

recommendations produced by WWFS’ Pension Transfer Specialists;

b)
challenge the reasons for why almost all customers were recommended to

transfer out;

c)
respond with additional resource to the large increase in volume of defined

benefit work from September 2017 onwards, a large proportion of which

was undertaken by Adviser A, who was relatively inexperienced, particularly

in advising on Pension Transfers;

d)
with knowledge of non-compliant Pension Transfer advice given by Adviser

A, ensure that Adviser A’s advice was routinely reviewed by an appropriately

qualified person;

e)
in the knowledge of non-compliant Pension Transfer advice given by Adviser

A, restrict the workload placed upon them and provide training/support;

f)
ensure that the Pension Transfer advice provided on behalf of WWFS was

assessed not just for file completeness but for its suitability; and

g)
adequately monitor Adviser A, taking into account their inexperience and

the large proportion of WWFS’s Pension Transfer advice that they gave.

5.5.
Each of these steps would have been reasonable ones for Mr Lewis to have taken

in the performance of his CF10 (Compliance Oversight) function, to ensure that

WWFS complied with Principles 6 and 9 of the FCA’s Principles for Businesses, and

the relevant COBS rules.

5.6.
Furthermore, by not taking these steps, and thereby failing to maintain an

appropriate level of understanding about WWFS’ Pension Transfer business, a

large proportion of which was delegated to Adviser A, an inexperienced Pension

Transfer Specialist, Mr Lewis failed to exercise due skill, care and diligence in the

performance of his CF10 (Compliance Oversight) function, in breach of Statement

of Principle 6.

5.7.
The Authority therefore considers that Mr Lewis is not fit and proper to perform

the SMF16 (Compliance Oversight) senior management function, or any function

in relation to the regulated activity of advising on Pension Transfers and Pension

Opt Outs carried on by an authorised person, exempt person and exempt

professional firm.

6.
SANCTION

Financial penalty

6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5B sets out the details of the five-step framework that applies in

respect of financial penalties imposed on individuals in non-market abuse cases.

Step 1: disgorgement

6.2.
Pursuant to DEPP 6.5B.1G, at Step 1 the Authority seeks to deprive an individual

of the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.3.
Mr Lewis did not derive direct financial benefit from the breach.

6.4.
Step 1 is therefore £0.

Step 2: the seriousness of the breach

6.5.
Pursuant to DEPP 6.5B.2G, at Step 2 the Authority determines a figure that

reflects the seriousness of the breach. That figure is based on a percentage of

the individual’s relevant income. The individual’s relevant income is the gross

amount of all benefits received by the individual from the employment in

connection with which the breach occurred, and for the period of the breach.

6.6.
The period of Mr Lewis’ breach of Statements of Principle 6 and 7 was from 16

March 2017 to 14 December 2017. Pursuant to DEPP 6.5B.2G(2), in cases where

the breach latest less than 12 months, the relevant income will be that earned by

the individual in the 12 months preceding the end of the breach. The Authority

considers Mr Lewis’ relevant income for this period to be £31,987.96.

6.7.
In deciding on the percentage of the relevant income that forms the basis of the

step 2 figure, the Authority considers the seriousness of the breach and chooses

a percentage between 0% and 40%. This range is divided into five fixed levels

which represent, on a sliding scale, the seriousness of the breach; the more

serious the breach, the higher the level. For penalties imposed on individuals in

non-market abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.8.
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly.

Impact of the Breach

6.9.
Mr Lewis’ breach caused a significant risk of loss, as a whole, to consumers who

transferred out of their Defined Benefit Pension Scheme as a result of his advice.

Completed transfers had a total CETV of £9,769,550.32. The total CETVs of these

cases and cases stopped in the advice pipeline was £53,492,321.30. Mr Lewis’

breaches would have placed a large proportion of those funds at significantly

increased risk had it not been for the VREQ. (DEPP 6.5B.2G(8)(b)).

6.10.
Mr Lewis’ breach caused a significant risk of loss to individual consumers who

transferred out of their Defined Benefit Pension Scheme as a result of advice given

to them by WWFS. For many customers, their Defined Benefit Pension Scheme

was their most valuable asset (average CETV of the file sample was £393,006,

average CETV for pipeline cases was £310,090) and was their main retirement

provision (DEPP 6.5B.2G(8)(c)).

6.11.
Mr Lewis’ breach disproportionately affected BSPS members, who made up the

majority of WWFS’ Pension Transfer advice customers during the Relevant Period

and many of whom were in a vulnerable position due to the uncertainty

surrounding the future of the BSPS (DEPP 6.5B.2G(8)(d)).

Nature of the Breach

6.12.
The breach was a continuous one during the Relevant Period, though the harm

caused was concentrated in the period from September 2017 to December 2017

(DEPP 6.5B.2G(9)(b)).

6.13.
Mr Lewis is an experienced industry professional having worked in financial

services since 1989, working a regional manager, IFA, Compliance Officer,

Business Quality Manager and founder of West Wales Financial Services Limited.

He held senior management functions at WWFS ( (DEPP 6.5B.2G(9)(j) and (k)).

As the Compliance Officer at WWFS, who had responsibility for designing and

implementing the compliance process, he has significant responsibility for non-

compliant advice issued by the firm ((DEPP 6.5B.2G(9)(l)).

6.14.
Although Mr Lewis took some steps to meet his responsibilities, these were

inadequate ((DEPP 6.5B.2G(9)(n)).

Whether the breach was deliberate and/or reckless

6.15.
The breaches committed by Mr Lewis were as a result of his serious lack of

competence, rather than deliberate or reckless acts (DEPP 6.5B.2G(11)).

Level of Seriousness

6.16.
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. Of

these, the Authority considers the following factor to be relevant:

a)
Mr Lewis’ breach caused a significant risk of loss to individual consumers

(DEPP 6.5B.2G(12)(a)).

6.17.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. Of

these, the Authority considers the following factors to be relevant:

a)
Mr Lewis’ breach was committed negligently (DEPP 6.5B.2G(13)(d)).

6.18.
Taking all of these factors into account, the Authority considers the seriousness

of the breach to be level 3 and so the Step 2 figure is 20% of £31,987.96.

6.19.
Step 2 is therefore £6,397.59.

Step 3: mitigating and aggravating factors

6.20.
Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2, but not including any

amount to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.21.
The Authority has considered whether any of the mitigating or aggravating factors

listed in DEPP 6.5B.3G, or any other such factors, apply in this case and has

concluded that none applies to a material extent, such that the penalty ought to

be increased or decreased.

Step 4: adjustment for deterrence

6.22.
Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the individual who committed the breach, or others,

from committing further or similar breaches, then the Authority may increase the

penalty.

6.23.
The Authority considers that the Step 3 figure of £6,397.59 does not represent a

sufficient deterrent to Mr Lewis and others and has therefore increased the penalty

by a factor of six.

6.24.
Step 4 is therefore £38,300 (rounded down to nearest £100).

Step 5: settlement discount

6.25.
Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom a penalty

is to be imposed agree the amount of the financial penalty and other terms, DEPP

6.7 provides that the amount of the financial penalty which might otherwise have

been payable will be reduced to reflect the stage at which the Authority and the

individual reached agreement. The settlement discount does not apply to the

disgorgement of any benefit calculated at Step 1.

6.26.
The Authority and Mr Lewis reached agreement at Stage 1 and so a 30% discount

applies to the Step 4 figure.

6.27.
Step 5 is therefore £26,800 (rounded down to nearest £100).

Conclusion as to financial penalty

6.28.
Having applied the five-step framework set out in DEPP, the appropriate level of

financial penalty to be imposed on Mr Lewis is £26,800.

6.29.
The Authority would have imposed a financial penalty of £38,300 on Mr Lewis

(reduced to £26,800 as Mr Lewis agreed to settle at an early stage of the

Authority’s investigation and therefore qualified for a 30% (stage 1) discount

under the Authority’s executive settlement procedures). However, the Authority

recognises that there is significant liability for redress for WWFS’s customers

which has fallen to the FSCS. As at 21 November 2023, the FSCS has paid out

£758,725.55 in compensation to customers of WWFS. Had it not been for the

compensation limit of £85,000, the total compensation available to customers

would have been £972,197.28. In these circumstances, the Authority has agreed

with Mr Lewis that in lieu of the imposition of a financial penalty, the sum of

£26,800, be paid direct to the FSCS to contribute towards any redress due to

WWFS’s customers. This is in furtherance of the Authority’s consumer protection

objective. In light of the above, and taking into account all the exceptional

circumstances of the BSPS, the Authority hereby publishes a statement of

Mr Lewis’ misconduct.

6.30.
The Authority’s policy in relation to the imposition of a public censure is set out in

Chapter 6 of DEPP. DEPP sets out non exhaustive factors that may be of particular

relevance in determining whether it is appropriate to issue a public censure rather

than impose a financial penalty. DEPP 6.4.2G (5) includes that it may be a factor

(depending on the nature and seriousness of the breach) in favour of a public

censure rather a financial penalty including but not limited to where a person has

taken steps to ensure that those who have suffered loss due to the breach are

fully compensated for those losses. Whilst the full amount of any losses due to Mr

Lewis’ breaches are not yet quantified, they may be significant. In light of this,

and the FSCS having already paid out £758,725.55 to WWFS’s customers, the

Authority has agreed that the sum of £26,800 should be paid direct to the FSCS.

6.31.
The Authority has had regard to the fact that Mr Lewis has agreed to transfer to

the FSCS assets that would otherwise be used to satisfy any financial penalty

imposed by the Authority to be used towards any redress due to WWFS’s

customers. On that basis, the Authority has decided not to impose a financial

penalty on Mr Lewis but instead hereby publishes on its website the Notice as a

statement of Mr Lewis’ misconduct under section 66 of the Act.

Withdrawal of Approval and Prohibition Order

6.32.
The Authority considers that it is appropriate and proportionate to prohibit Mr

Lewis from performing the following functions because he is not a fit and proper

person to perform such functions due to his lack of competence and capability:

(a)
any senior management function in relation to any regulated activity carried

on by an authorised person, exempt person or exempt professional firm;

and

(b)
any function in relation to the regulated activity of advising on Pension

Transfers and Pension Opt Outs carried on by an authorised person, exempt

person or exempt professional firm.

6.33.
The Authority has had regard to the guidance in Chapter 9 of EG in considering

whether to withdraw Mr Lewis’s approval to perform controlled functions and

whether to impose a prohibition order on him. The Authority has the power to

prohibit individuals under section 56 of the Act.

6.34.
The Authority considers it is appropriate and proportionate in all the circumstances

to withdraw Mr Lewis’ SMF3 (Executive Director), SMF16 (Compliance Oversight)

and SMF17 (Money Laundering Reporting Officer) senior management functions

at WWFS.

7.
PROCEDURAL MATTERS

7.1.
This Notice is given to Mr Lewis under and in accordance with section 390 of the

Act. The following statutory rights are important.

Decision maker

7.2.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

7.3.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this notice relates. Under those provisions,

the Authority must publish such information about the matter to which this notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to you or prejudicial to the interests of consumers or

detrimental to the stability of the UK financial system.

7.4.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts


7.5.
For more information concerning this matter generally, contact Kingsley Moore at

the Authority (direct line: 020 7066 0401/email: Kingsley.Moore2@fca.org.uk).

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

The Financial Services and Markets Act 2000 (“the Act”)

The Authority’s operational objectives

1.
The Authority’s operational objectives are set out in section 1B(3) of the Act

and include securing an appropriate degree of protection for consumers and

protecting and enhancing the integrity of the UK financial system.

Section 56 of the Act

2.
Section 56 of the Act provides that the Authority may make an order prohibiting

an individual from performing a specified function, any function falling within a

specified description or any function, if it appears to the Authority that that

individual is not a fit and proper person to perform functions in relation to a

regulated activity carried on by an authorised person, a person who is an

exempt person in relation to that activity or a person to whom, as a result of

Part 20, the general prohibition does not apply in relation to that activity. Such

an order may relate to a specified regulated activity, any regulated activity

falling within a specified description, or all regulated activities

Section 63 of the Act

3.
Section 63 of the Act provides that the Authority may withdraw an approval

under section 59 given by the Authority in relation to the performance by a

person of a function if the Authority considers that the person is not a fit and

proper person to perform the function.

Section 66A of the Act

4.
Under section 66A of the Act, the Authority may take action against a person

if it appears to the Authority that he is guilty of misconduct and the Authority

is satisfied that it is appropriate in all the circumstances to take action against

him, including the imposition of a penalty of such amount as it considers

appropriate.

5.
Under section 66A of the Act a person is guilty of misconduct if, inter alia, he

at any time failed to comply with rules made by the Authority under section

64A of the Act and at that time was an approved person, or had been knowingly

concerned in a contravention of relevant requirement by an authorised person

and at that time the person was an approved person in relation to the

authorised person.

RELEVANT REGULATORY PROVISIONS

The Authority’s Handbook of Rules and Guidance

6.
In exercising its powers to impose a financial penalty, the Authority must have

regard to the relevant regulatory provisions in the Authority’s Handbook of

rules and guidance (the “Handbook”). The main provisions that the Authority

considers relevant are set out below.

Principles for Businesses (“PRIN”)

7.
The Principles are a general statement of the fundamental obligations of firms

under the regulatory system and are set out in the Handbook. They derive their

authority from the Authority’s rulemaking powers as set out in the Act and

reflect the Authority’s regulatory objectives. They can be accessed here:

8.
Principle 6 of the FCA’s Principles for Businesses states that:

“a firm must pay due regard to the interests of its customers and treat

them fairly”.

9.
Principle 9 of the FCA’s Principles for Businesses states that:

“a firm must take reasonable care to ensure the suitability of its advice

and discretionary decisions for any customer who is entitled to rely upon

its judgment.”

Statements of Principle and Code of Practice for Approved Persons

(“APER”)

10.
The part of the Authority’s handbook known as APER sets out the Statements

of Principle issued under section 64 of the Act as they relate to approved

persons and descriptions of conduct which, in the opinion of the Authority, do

not comply with a Statement of Principle.

11.
APER further describes factors which, in the opinion of the Authority, are to be

taken into account in determining whether or not an approved person’s conduct

complies with particular Statements of Principle.

12.
Statement of Principle 6 states that:

“An approved person performing an accountable higher management

function must exercise due skill, care and diligence in managing the

business of the firm for which they are responsible in their accountable

function”.

13.
Statement of Principle 7 states that:

“an approved person performing an accountable higher management

function must take reasonable steps to ensure that the business of the

firm for which they are responsible in their accountable function complies

with the relevant requirements and standards of the regulatory system.”

14.
‘Accountable higher management functions’ includes any accountable function

that is an Authority controlled function that is a significant influence function.

Significant influence functions include the following controlled functions: CF1

(Director), CF3 (Chief Executive), CF10 (Compliance Oversight) and CF11

(Money Laundering Reporting).

15.
APER 3.1.8AG provides, in relation to applying Statements of Principle 5 to 7,

that the nature, scale and complexity of the business under management and

the role and responsibility of the individual performing an accountable higher

management function within the [APER employer (in place from 7 December

2020, previously “the firm”] will be relevant in assessing whether an approved

person’s conduct was reasonable.

16.
APER 3.3.1G states that in determining whether or not the conduct of an

approved person performing an accountable higher management function

complies with Statements of Principle 5 to 7, the following are factors which,

in the opinion of the Authority, are to be taken into account:

(1) whether he exercised reasonable care when considering the

information available to him;

(2) whether he reached a reasonable conclusion which he acted on;

(3) the nature, scale and complexity of the [APER employer’s] (in place

from 7 December 2020, previously “the firm’s”) business;

(4) their role and responsibility as an approved person performing an

accountable [significant-influence (in place until 6 March 2016)] or

[higher management (in place from 7 March 2016)] function; and

(5) the knowledge he had, or should have had, of regulatory concerns, if

any, arising in the business under his control.

17.
APER 4.6 describes conduct which in the opinion of the Authority does not

comply with Principle 6.

18.
APER 4.6.2G provides that in the opinion of the Authority, conduct of the type

described in APER 4.6.3G, APER 4.6.5G, APER 4.6.6G or APER 4.6.8G does not

comply with Statement of Principle 6.

19.
APER 4.6.3G provides that failing to take reasonable steps to adequately inform

themselves about the affairs of the business for which they are responsible falls

within APER 4.6.2G.

20.
APER 4.6.4G provides that Behaviour of the type referred to in APER 4.6.3 G

includes, but is not limited to:

(1) permitting transactions without a sufficient understanding of the risks

involved;

(2) permitting expansion of the business without reasonably assessing

the potential risks of that expansion;

(3) inadequately monitoring highly profitable transactions or business

practices or unusual transactions or business practices; […]

21.
APER 4.6.5G provides that delegating the authority for dealing with an issue or

a part of the business to an individual or individuals (whether in-house or

outside contractors) without reasonable grounds for believing that the delegate

had the necessary capacity, competence, knowledge, seniority or skill to deal

with the issue or to take authority for dealing with part of the business, falls

within APER 4.6.2G (see APER 4.6.13G).

22.
APER 4.6.6G provides failing to take reasonable steps to maintain an

appropriate level of understanding about an issue or part of the business that

they have delegated to an individual or individuals (whether in-house or outside

contractors) falls within APER 4.6.2G (see APER 4.6.14G).

23.
APER 4.6.7G provides that behaviour of the type referred to in APER 4.6.6 G

includes but is not limited to:

(1) disregarding an issue or part of the business once it has been

delegated;

(2) failing to require adequate reports once the resolution of an issue or

management of part of the business has been delegated; […]

24.
APER 4.6.8G provides that failing to supervise and monitor adequately the

individual or individuals (whether in-house or outside contractors) to whom

responsibility for dealing with an issue or authority for dealing with a part of

the business has been delegated falls within APER 4.6.2G.

25.
APER 4.6.9G provides that behaviour of the type referred to in APER 4.6.8G

includes, but is not limited to:

(1) failing to take personal action where progress is unreasonably slow,

or where implausible or unsatisfactory explanations are provided;

(2) failing to review the performance of an outside contractor in

connection with the delegated issue or business.

26.
In determining whether or not the conduct of an approved person performing

an accountable higher management function under APER 4.6.5G, APER 4.6.6G

and APER 4.6.8G complies with Statement of Principle 6, the following are

factors which, in the opinion of the FCA, are to be taken into account:

(1) the competence, knowledge or seniority of the delegate; and

(2) the past performance and record of the delegate.

27.
APER 4.6.13G (Delegation) provides, amongst other provisions, that:

(1) An approved person performing an accountable higher management

function may delegate the investigation, resolution or management of an

issue or authority for dealing with a part of the business to individuals

who report to them or to others.

(2) The approved person performing an accountable higher management

function should have reasonable grounds for believing that the delegate

has the competence, knowledge, skill and time to deal with the issue. For

instance, if the compliance department only has sufficient resources to

deal with day-to-day issues, it would be unreasonable to delegate to it

the resolution of a complex or unusual issue without ensuring it had

sufficient capacity to deal with the matter adequately. […].

28.
APER 4.7 describes conduct which in the opinion of the Authority does not

comply with Principle 7.

29.
APER 4.7.2G provides that in the opinion of the Authority, conduct of the type

described in APER 4.7.3G, APER 4.7.4G, APER 4.7.5G, APER 4.7.7G, APER

4.7.9G, APER 4.7.10G or APER 4.7.11AG does not comply with Statement of

Principle 7.

30.
APER 4.7.3G provides that failing to take reasonable steps to implement (either

personally or through a compliance department or other departments)

adequate and appropriate systems of control to comply with the relevant

requirements and standards of the regulatory system in respect of the

regulated activities of the [APER employer] (in place from 7 December 2020,

previously “the firm”) firm in question (as referred to in Statement of Principle

7) falls within APER 4.7.2G. [In the case of an approved person who is

responsible, under SYSC 4.4.5R(2), with overseeing the firm's obligation under

SYSC 4.1.1R, failing to take reasonable care to oversee the establishment and

maintenance of appropriate systems and controls falls within APER 4.7.2G. (in

place until 8 December 2019)].

31.
APER 4.7.4G provides that failing to take reasonable steps to monitor (either

personally or through a compliance department or other departments)

compliance with the relevant requirements and standards of the regulatory

system in respect of the regulated activities of the [APER employer] (in place

from 7 December 2020, previously “the firm”) in question (as referred to in

Statement of Principle 7) falls within APER 4.7.2G.

32.
APER 4.7.11G provides that the Authority expects an approved person

performing an accountable higher management function to take reasonable

steps both to ensure their [APER employer’s] (in place from 7 December 2020,

previously “firm’s”) compliance with the relevant requirements and standards

of the regulatory system and to ensure that all staff are aware of the need for

compliance.

33.
APER 4.7.12G provides that an approved person performing an accountable

higher management function need not themselves put in place the systems of

control in their business (APER 4.7.4G). Whether he does this depends on his

role and responsibilities. He should, however, take reasonable steps to ensure

that the business for which he is responsible has operating procedures and

systems which include well-defined steps for complying with the detail of

relevant requirements and standards of the regulatory system and for ensuring

that the business is run prudently. The nature and extent of the systems of

control that are required will depend upon the relevant requirements and

standards of the regulatory system, and the nature, scale and complexity of

the business.

Conduct of Business Sourcebook (“COBS”)

The client’s best interest rule

34.
COBS 2.1.1R:

(1) A firm must act honestly, fairly and professionally in accordance with

the best interests of its client (the client's best interests rule).

Communication is fair clear and not misleading

35.
COBS 4.2.1R:

(1) A firm must ensure that a communication or a financial promotion is

fair, clear and not misleading.

Assessing suitability: the obligations

36.
COBS 9.2.1R:

(1) A firm must take reasonable steps to ensure that a personal

recommendation, or a decision to trade, is suitable for its client; and

(2) When making the personal recommendation or managing his

investments, the firm must obtain the necessary information regarding

the client's:

(a) knowledge and experience in the investment field relevant to

the specific type of designated investment or service;

(b) financial situation; and

(c) investment objectives;

so as to enable the firm to make the recommendation, or take the

decision, which is suitable for him.

37.
COBS 9.2.2R:

(1) A firm must obtain from the client such information as is necessary

for the firm to understand the essential facts about him and have a

reasonable basis for believing, giving due consideration to the nature and

extent of the service provided, that the specific transaction to be

recommended, or entered into in the course of managing:

(a) meets his investment objectives;

(b) is such that he is able financially to bear any related investment

risks consistent with his investment objectives; and

(c) is such that he has the necessary experience and knowledge in

order to understand the risks involved in the transaction or in the

management of his portfolio.

(2) The information regarding the investment objectives of a client must

include, where relevant, information on the length of time for which he

wishes to hold the investment, his preferences regarding risk taking, his

risk profile, and the purposes of the investment.

(3) The information regarding the financial situation of a client must

include, where relevant, information on the source and extent of his

regular income, his assets, including liquid assets, investments and real

property, and his regular financial commitments.

38.
COBS 9.2.3 R:

The information regarding a client’s knowledge and experience in the

investment field includes, to the extent appropriate to the nature of the

client, the nature and extent of the service to be provided and the type

of product or transaction envisaged, including their complexity and the

risks involved, information on:

(1) the types of service, transaction and designated investment with

which the client is familiar;

(2) the nature, volume, frequency of the client’s transactions in

designated investments and the period over which they have been

carried out;

(3) the level of education, profession or relevant former profession

of the client.

39.
COBS 9.2.4 R:

A firm must not encourage a client not to provide information for the

purposes of its assessment of suitability.

40.
COBS 9.2.5 R:

A firm is entitled to rely on the information provided by its clients unless

it is aware that the information is manifestly out of date, inaccurate or

incomplete.

Insufficient information

41.
COBS 9.2.6R:

If a firm does not obtain the necessary information to assess suitability,

it must not make a personal recommendation to the client or take a

decision to trade for him.

Suitability reports

42.
During the Relevant Period COBS 9.4 set out the following rules and guidance

concerning Suitability reports.

43.
COBS 9.4.1 R:

A firm must provide a suitability report to a retail client if the firm makes

a personal recommendation to the client and the client:

(2) buys, sells, surrenders, converts or cancels rights under, or

suspends contributions to, a personal pension scheme or a

stakeholder pension scheme; or

(3) elects to make income withdrawals or purchase a short-term

annuity; or

(4) enters into a pension transfer or pension opt-out

44.
COBS 9.4.7R:

The suitability report must, at least:

(1) specify the client's demands and needs;

(2) explain why the firm has concluded that the recommended

transaction is suitable for the client having regard to the information

provided by the client; and

(3) explain any possible disadvantages of the transaction for the

client.

45.
COBS 9.4.8 G:

A firm should give the client such details as are appropriate according to

the complexity of the transaction.

Pension transfers, conversions, and opt-outs

46.
COBS 19.1 applies, with some exclusions, to a firm that gives advice or a

personal recommendation about a pension transfer, a pension conversion or a

pension opt-out. The following provisions of COBS 19.1 are set out as they

applied during the Relevant Period.

47.
COBS 19.1.2R:

A firm must:

(1) compare the benefits likely (on reasonable assumptions) to be

paid under a defined benefits pension scheme or other pension

scheme with safeguarded benefits with the benefits afforded by a

personal pension scheme, stakeholder pension scheme or other

pension scheme with flexible benefits, before it advises a retail

client to transfer out of a defined benefits pension schemeor other

pension scheme with safeguarded benefits;

(2) ensure that that comparison includes enough information for

the client to be able to make an informed decision;

(3) give the client a copy of the comparison, drawing the client's

attention to the factors that do and do not support the firm's advice,

in good time, and in any case no later than when the key features

document is provided; and

(4) take reasonable steps to ensure that the client understands the

firm's comparison and its advice.

48.
COBS 19.1.3G:

In particular, the comparison should:

(1) take into account all of the retail client's relevant circumstances;

(2) have regard to the benefits and options available under the

ceding scheme and the effect of replacing them with the benefits

and options under the proposed scheme;

(3) explain the assumptions on which it is based and the rates of

return that would have to be achieved to replicate the benefits being

given up;

(4) be illustrated on rates of return which take into account the

likely expected returns of the assets in which the retail client's funds

will be invested; and

(5) where an immediate crystallisation of benefits is sought by the

retail client prior to the ceding scheme’s normal retirement age,

compare the benefits available from crystallisation at normal

retirement age under that scheme.

49.
COBS 19.1.6G:

When advising a retail client who is, or is eligible to be, a member of a

defined benefits occupational pension scheme or other scheme with

safeguarded benefits whether to transfer, convert or opt-out, a firm

should start by assuming that a transfer, conversion or opt-out will not

be suitable. A firm should only then consider a transfer, conversion or

opt-out to be suitable if it can clearly demonstrate, on contemporary

evidence, that the transfer, conversion or opt-out is in the client's best

interests

50.
COBS 19.1.7G:

When a firm advises a retail client on a pension transfer, pension

conversion or pension opt-out, it should consider the client’s attitude to

risk including, where relevant, in relation to the rate of investment growth

that would have to be achieved to replicate the benefits being given up.

51.
COBS 19.1.7AG:

When giving a personal recommendation about a pension transfer or

pension conversion, a firm should clearly inform the retail client about

the loss of the safeguarded benefits and the consequent transfer of risk

from the defined benefits pension scheme or other scheme with

safeguarded benefits to the retail client, including:

(1) the extent to which benefits may fall short of replicating those

in the defined benefits pension scheme or other scheme with

safeguarded benefits;

(2) the uncertainty of the level of benefit that can be obtained from

the purchase of a future annuity and the prior investment risk to

which the retail client is exposed until an annuity is purchased with

the proceeds of the proposed personal pension scheme or

stakeholder pension scheme; and

(3) the potential lack of availability of annuity types (for instance,

annuity increases linked to different indices) to replicate the

benefits being given up in the defined benefits pension scheme.

52.
COBS 19.1.8G:

53.
When a firm prepares a suitability report it should include:

(1) a summary of the advantages and disadvantages of its personal

recommendation;

(2) an analysis of the financial implications (if the recommendation is to

opt-out); and

(3) a summary of any other material information.

Fit and Proper test for Employees and Senior Personnel (“FIT”)

54.
Guidance on the question whether an individual is a fit and proper person is

given in the part of the Handbook called the Fit and Proper Test for Employees

and Senior Personnel (FIT). FIT 1.3.1G states that the Authority will have

regard to a number of factors when assessing the fitness and propriety of a

person to perform a particular controlled function. The most important

considerations will be the person’s:

(1) honesty, integrity and reputation;

(2) competence and capability; and

(3) financial soundness.

55.
For the purposes of this notice the only relevant consideration is (2)

competence and capability.

Enforcement Guide (“EG”)

56.
The Authority’s policy for exercising its power to make a prohibition order is

set out in Chapter 9 of EG.

57.
EG 9.2.2 states that the Authority has the power to make a range of prohibition

orders depending on the circumstances of each case and the range of regulated

activities to which the individual’s lack of fitness and propriety is relevant.

Depending on the circumstances of each case, the Authority may seek to

prohibit an individual from performing any class of function in relation to any

class of regulated activity, or it may limit the prohibition order to specific

functions in relation to specific regulated activities. The Authority may also

make an order prohibiting an individual from being employed by a particular

firm, type of firm or any firm.

58.
EG 9.2.3 states that the scope of the prohibition order will depend on the range

of functions which the individual concerned performs in relation to regulated

activities, the reasons why he is not fit and proper and the severity of risk

which he poses to consumers or the market generally. At EG 9.3.5(4) the

Authority gives a serious lack of competence as an example of the type of

behaviour which has previously resulted in the Authority deciding to issue a

prohibition order.

59.
EG sets out the Authority’s approach to taking disciplinary action. The

Authority’s approach to financial penalties is set out in Chapter 7 of EG, which

can be accessed here:

Decision Procedures and Penalties Manual (“DEPP”)

60.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the

Authority’s policy for imposing a financial penalty. The Authority applies a five-

step framework to determine the appropriate level of financial penalty. DEPP

6.5B sets out the details of the five-step framework that applies to financial

penalties imposed on individuals in non-market abuse cases, which can be

accessed here: