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Pension switching thematic review; is an axe about the fall?
In December 2008, the FSA released its findings on pension switches. Its findings were such that they widened the breadth of the review to a broader population of firms carrying out such business. It also published guidelines of 'good practices' - defined by the FSA as evidence that a firm has gone beyond its rules and principles - and 'poor practice', by analogy, found in firms whose standards fell below the FSA's rules and principles.
What is suitability?
Ah, therein lays the key question! Well, we all know that 'suitability' is the catchall by which FOS is able to 'impose' liability on a firm even where their file is 100% compliant e.g. where no rules or laws have been broken. So what better standard for the Regulator, who does have enforcement powers - unlike FOS - and does not even need to hold a trial, to pre-empt what could, if left, develop into another problem on the scale of the last debacle of a pension review, than the 'suitability yardstick?
Indeed, with an ability to 'impose liability' and force firms to offer redress if they are found not to have met the 'suitability test', the FSA and suitability are a force to be reckoned with. And, by god, what better way to forcibly, and publicly, impose a uniform standard across the industry, and force an industry to adhere to said standard, when a breach thereof would lead to a firm having to pay compensation - without any trial - and review every other such file, and offer redress where necessary, and face a public display of its shortcomings on the FSA register; you will all agree that this really is the ultimate deterrent.
FOS & the FSA - separate entities! Really?
No! It is too much of a coincidence that the outcome of the sale - the measure of which is suitability - and the means by which FOS already impose liability on a firm is now the focus of the FSA's attention. Think about it. FOS works after the event, once a client realises there is supposedly a problem. So, what better way to quickly and effectively deter firms from dropping below standards in future than exposing them to immediate liability, for business already done, about which they can do nothing - except wait for the axe to fall - than this? None!
Whilst the FSA could argue that this exposure to liability is mitigated by the fact that the thematic review, this time, is not industry wide and is limited in scope from 2006, the reality of this is that there is no need to go back any further because the 'big' pension review has only just finished.
Complaints - report - review
It is known fact that FOS 'report' firms who do not pay up in accordance with a Final Decision to the FSA because it is the FSA with enforcement powers. Similarly, having dealt with many cases as a freelance specialist, I have seen evidence of FOS and the FSA discussing cases where there could be a 'wider impact'. As FOS deals with said complaints, after the event, it goes without saying that FOS feeds said information to the FSA so specific areas of the industry, particularly those involving the most important aspects of a consumer's financial wellbeing e.g. home and income in retirement - which directly correlates with the endowment and pension review - can be kept under constant scrutiny and, if problems are identified, stamped out immediately, using harsh, public action.
What about treating firms fairly?
Well, the FSA has kindly given you templates to use for assessing suitability for switching. Many of you will undoubtedly be tearing your hair out when you suddenly discover that business that you would ordinarily have recommended does not fit the criteria. What should you do? Should you:
- do the business - and take a possibly immeasurable risk?
- turn the client away, because you are too afraid to take the risk, but earn no money?
or - should you verbally advise your client, but on paper get them to sign a waiver so you can label said client as an 'insistent customer' in order to mitigate or negate your liability in the process?
But what about the business already written?
Although the business written, which you cannot change, only spans from 2006 to now, this is still the area that poses the greatest risk to all of you involved so far. Whilst FOS may well rue the day that it taught me how it works, it is becoming more apparent that my time at FOS, though remarkably unpleasant on occasion, was probably the best spent 16 months of my life.
The FSA is now going to bring the axe down publicly to nip what it sees as a problem, having pre-empted any consumer complaints, in the bud.
So, if you are concerned about how to defend the work already done that poses the highest risk for your liability, do feel free to contact me, Jane Sanders, at jane@jscs.org.uk to discuss your concerns and how best to protect your interests.
Article last updated: Aug 21, 2009
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