Obligation to provide a suitability report to non-UK residents

It is not unknown for one FCA rule to be apparently in conflict with another. That is what makes the life of a Compliance Consultant so on the edge! A recent example we looked at is described below.

Suitability Reports for Pension Transfer Advice
There are many individuals who are not resident in the UK yet have a UK based defined benefit pension. This applies to UK nationals who worked in the UK in the past but who now live permanently elsewhere, having emigrated, for example, to Australia or New Zealand. It can also apply where non-UK citizens spent an earlier career period in the UK and benefitted from membership of a DB pension scheme before returning to their country of origin. 

It is understandable that these individuals would want to transfer the value of the UK pension to their current country of residence. There are many good reasons why such a transfer could be suitable – simplification, taxation, and currency considerations could all apply.

Such individuals are obliged to take advice in order to enable a pension transfer where the value of the safeguarded benefits exceeds £30,000.

Where advice is provided, COBS 19.1 rules require a personal recommendation to be made (transfer or not) and COBS 9.4.2A then requires that the client is provided with a suitability report.

“If a firm makes a personal recommendation in relation to a pension transfer or pension conversion, it must provide the client with a suitability report.”

However, COBS 9.4.3 (2) states that a suitability report is not required for clients resident outside the EEA and not in the UK at the time of the contract being effected. This would appear to apply, for example, to a UK national who has emigrated to Australia and now wishes to transfer his/her pension for whatever reason.

“The obligation to provide a suitability report does not apply …
… if the client is habitually resident outside the EEA and the client is not present in the United Kingdom at the time of acknowledging consent to the proposal form to which the personal recommendation relates.”

These rules appear to be mutually exclusive.

Solving the riddle
The apparent conflict can be resolved by considering what is actually involved in pension transfer cases. In fact, when a UK regulated firm gives pension transfer advice, there are usually two pieces of advice given: 

  • advising on a pension transfer (article 53E of the RAO); and
  • advising on the destination for transferred funds (article 53(1) of the RAO).

So, if a firm gives advice on both the transfer and the destination, there will be two personal recommendations. 

The recommendation in relation to the transfer is advice only on whether or not to keep the defined benefit pension scheme. As there is no ‘proposal form’ in relation to the personal recommendation, COBS 9.4.3R(2) irrelevant. So, a suitability report must be provided as set out in COBS 9.4.2A, including to clients who are habitually resident outside the EEA (or outside the UK after the EU withdrawal transition period ends – COBS 9.4.3(2) will be amended accordingly).

Now, while the exemption from providing a suitability report technically applies to the second recommendation, i.e. in relation to the destination for the transferred funds, we consider that to be academic in practice. Any suitability report required for the transfer element is going to look a bit strange if it does not also cover the destination plan and funds where the firm is to advise on that element. 

Of course, in practice, in many of these non-resident situations, the client will have a local adviser who is advising on the investment element and that leaves the UK adviser only doing the ‘transfer bit’. The UK adviser still needs to a) know the intended destination and b) consider it in the context of the transfer.

Overall the apparent rules conflict is removed as the recommendation on the transfer element always needs to be confirmed in a suitability report, regardless of whether advice is being provided on the investment element.


Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

The story above gives you a hint of what passes for excitement in a compliance consultancy!

The serious message, though, is that FCA rules can be difficult to interpret and turn into practical implementation. That’s where ATEB comes in. Don’t hesitate to call if you want any help complying with the rules.

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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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