Warning Notice Statement 17/2

The Financial Conduct Authority (the FCA) gave an individual a Warning Notice on 17
January 2017 proposing to take action in respect of the conduct summarised in this
statement.


IMPORTANT: A warning notice is not the final decision of the FCA. The
individual has the right to make representations to the Regulatory
Decisions Committee (RDC) which, in the light of those representations,
will decide on the appropriate action and whether to issue a decision
notice. The RDC is a Committee of the FCA board which decides whether
the FCA should give certain statutory notices described as within its
scope by the FCA’s Handbook.

If a decision notice is issued, the individual has the right to refer the
matter to the Upper Tribunal which would reach an independent decision
on the appropriate action for the FCA to take, if any.

If either the RDC or the Upper Tribunal decides that no further action
should be taken, the FCA will publish a notice of discontinuance provided
it has the individual’s consent.

The following is a summary of the reasons why the FCA gave the individual a Warning
Notice.

•
The individual was approved to perform the CF10 (Compliance oversight) controlled
function at two authorised firms.

•
These firms, between them, provided advice to over 700 members of defined benefit
schemes (‘DB schemes’) about the merits of transferring out of their DB schemes to
defined contribution schemes (‘DC schemes’) as part of enhanced transfer value
(‘ETV’) pension transfer exercises. Approximately 500 DB scheme members who
received advice transferred out of their DB schemes to DC schemes, between them
transferring a total of about £12.7 million.

•
The FCA considers that, between 1 February 2006 and 30 April 2009, the individual
breached Statement of Principle 6 of the FCA’s Statement of Principles for Approved
Persons by failing to use due skill, care and diligence in carrying out the compliance
oversight function. The individual failed to:

o
take reasonable steps adequately to inform himself about his obligations as a
CF10 and about the specific nature and risks of the ETV advice business;

o
take reasonable steps to ensure that the ETV advice process complied with,
and was capable of providing advice that complied with, applicable regulatory
requirements. In particular, the individual failed to:

(i) obtain appropriate independent expert opinion and advice to ensure that
the ETV advice process complied with, and was capable of providing advice
that complied with, applicable regulatory requirements; and


(ii) take reasonable steps to ensure that an external compliance consultant
that he appointed to review the ETV advice process was suitably qualified,
that it was instructed to, and did, undertake an adequate review, and that its
recommendations were properly implemented;

o
identify obvious flaws in the ETV advice process which he should have
identified either from his own review of the process, or from the limited file
reviews that he undertook, or from engaging an external compliance
consultant to undertake a proper review;

o
take reasonable steps to monitor the ETV advice process to ensure that it was
compliant and that suitable advice was being given. In particular, the
individual:

(i) failed to give any or sufficient consideration to the compliance of the ETV
advice process and of the advice given in his interactions with the pension
advisers; and

(ii) approved the appointment of a further external compliance consultant to
review the ETV advice business, despite knowing the consultant was not in a
position to carry out an effective review, and took no interest in the outcome
of the consultant’s review;

o
take reasonable steps to identify and manage adequately potential conflicts of
interest in relation to:

(i) the payment of commission to the firms by the pension provider to whom
customers transferred; and

(ii) the payment to one of the pension advisers of a proportion of the
proceeds from the ETV advice business that he conducted; and

o
undertake any review of the processes and documentation in place at one of
the firms in light of the impending implementation of MiFID in the form of the
COBS rules.

•
As a result of the individual’s failings, DB scheme members were at serious risk of
receiving unsuitable advice. This risk crystallised, resulting in a serious risk of
unsuitable customer outcomes. The FCA considers it likely that a significant
proportion of the approximately 500 members who transferred from a DB scheme to
a DC scheme would have decided not to transfer had they received suitable advice.