The FCA has warned of increased risk to consumers when overseas firms refer defined benefit (DB) scheme members to UK firms for pension transfer advice.

The regulator has reminded regulated advisers that the Consumer Duty rules - due to begin in July - must apply to advice to these transfers.

The FCA said that it was “concerned” about overseas firms targeting the UK pension benefits of defined benefit (DB) scheme members who are living overseas.

In a regulatory notice this week, it said UK firms engaging with overseas firms - or offering advice to scheme members based outside the UK - must abide by their regulatory responsibilities.

These include Consumer Duty, it says, and particularly the responsibility to proactively deliver “good outcomes” for retail customers and to avoid causing foreseeable harm to retail customers.

The FCA has issued the warning due to the prevalence of the “overseas advice model.”

In this model a member based overseas, such as an expat worker, is approached by an overseas firm about transferring their UK Defined Benefit (DB) pension benefits into an alternative pension arrangement. The FCA says this is often an overseas pension arrangement or a UK-based international self-invested personal pension (SIPP) holding offshore investments.   

It reminded advisers that where the scheme member has a cash equivalent transfer value (CETV) over £30,000, they must receive ‘appropriate independent advice’ from an FCA-authorised firm before scheme trustees can transfer pension benefits to a defined contribution (DC) scheme. This requirement applies whether the member is based in the UK or overseas.

Members with a CETV below £30,000 may also choose to receive transfer advice or arrange transfers without advice.

The FCA said that in some cases the overseas firm introduces the scheme member to a UK advice firm solely for advice on transferring their DB pension funds.

The overseas firm will usually advise on or undertake the proposed arrangement for the transferred funds. Once it’s confirmed that the member has received ‘appropriate independent advice’ on the transfer from the UK firm and on the member’s request, the overseas firm contacts the UK DB scheme trustees to arrange the transfer of the member’s pension benefits into the alternative pension arrangement and offshore investment. 

DB scheme trustees must review the application to transfer, the FCA said, and they have separate duties that are set out in the detailed guidance from the Pension Regulator (TPR) ‘Dealing with Transfer Requests’.  In these cases the overseas firms are not FCA authorised but may be regulated by an overseas regulator.

Relevant rules and guidance include SYSC 6, COBS 2, COBS 9, COBS 19, Principles 2, 3, 6, 7 and 9 and the FCA’s Finalised Guidance 21/3 (FG 21/3).

From 31 July, the Consumer Duty (Principle 12 and PRIN 2A) sets higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first.

• Source URL: https://www.fca.org.uk/firms/accepting-pension-transfer-referrals-overseas-advisers-uk-authorised-firms-responsibilities