Positive Compliance: Episode Two

Like the previous article ‘Positive Compliance: Episode One’ this article focussing on Pensions Switching has been drawn up by collating information from various sources following the FCA’s well received Positive Compliance workshops. It should be read in conjunction with the previous article which focussed on Systems and Controls and Business Standards.

There should be no surprises, but we strongly recommend that all principals and advisers read the articles carefully as a useful reminder and ensure that any gaps highlighted are addressed.

There inevitably will be overlap between the two articles, where possible we have tried to avoid this but please ensure you refer to the previous article to get the full picture. 

As part of the FCA’s new supervisory regime there is a project of thematic reviews planned, they have stated that the biggest concern to them is why a client needs a SIPP.

Remember that the client’s best interest rule and a resulting positive outcome for the client are cornerstones for every case.

Concerns and Expectations 

Extra Cost without Good Reason:

  • The ceding scheme must be fully analysed (including any deferred charges) and the question asked could it have satisfied the client’s needs?
  • What are the new product features that are specifically needed?
  • The FCA mentioned that consolidation, as an individual ‘client driver’ was insufficient, and that every scheme should be analysed to show there is a clear benefit to the client; consolidation is often cited by advisers, so please note this point carefully;
  • There was a concern that stakeholder pensions were not being considered;
  • There was a specific point made to avoid phrases such as ‘will give you access to over 2000 funds’ – a preferable phrase would be ‘will potentially give you access to more suitable funds’.

Loss of Benefit without Good Reason:

  • The main concern was that valuable benefits were being lost without justification or explanation why this was the case;
  • Care should be taken in transferring cases with protected tax free cash – again advisers must demonstrate why this is in the client’s best interest;
  • If the ceding scheme is a with profits fund there should still be analysis on file, if the charges are implicit and cannot be analysed, then confirmation of this should be on file. 


  •  Please ensure you refer to the previous article for the ATR issues raised.

Ongoing Reviews (in addition to points mentioned in the previous article):

  • The FCA have stated that it is acceptable to switch in order to facilitate ongoing adviser charges, but there must still be thorough analysis on file; there should be a clear ‘client driver’ that the client needs and requires an ongoing service;
  • The client must have a clear outcome;
  • The adviser must re-visit all key ‘know your client’ information to ensure it is still relevant, including ATR;
  • Reviews must be documented to match what was agreed in the firm’s proposition document.

Research (in addition to the FCA’s expectations mentioned in the last article):

  • The FCA wants to see a KFI for both the ceding and receiving schemes issued to the client, and showing the difference in cost;
  • Advisers must thoroughly compare the ceding and receiving schemes;
  • If performance is a ‘client driver’ the adviser must include a statement why they believe the performance is justified;
  • Advisers should analyse / compare ceding and receiving funds with and without adviser charge;
  • The Regulator has a pension switch template – we recommend you use it as a pre-sale suitability check. The template can be accessed by clicking here and follow the ‘suitability assessment template’ link. 

Suitability Reports should include:

  • Evidence of the client’s needs and objectives;
  • The client’s ATR, the ATR description and make up;
  • A clear, thorough comparison of the ceding and receiving schemes – table format suggested;
  • If the new scheme is more costly, justify why and what are the implications; and
  • Highlight (literally) any loss of benefits;
  • Explain why the new provider has been recommended taking particular care to tie this into client specific objectives;
  • Explain why a stakeholder pensions has been discounted?
  • Cover death benefits information.

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 FCA has given a clear indication of what they expect and what they will be looking for when they visit firms. Be prepared and ensure your standards match their expectations. 

Action Required By You

  • We strongly recommend you review your internal systems to ensure all of the points raised are being addressed;
  • Most of the feedback should cause you no surprise but you should nevertheless read through the points listed and mark each one with a tick (hopefully), a question mark (requiring clarification) or a cross (requiring action);
  • Discuss the findings with the senior management team and of course document the discussions and outcomes;
  • Ensure all advisers and staff involved in these areas are aware of the content of these Newsletters;
  • Discuss findings with your ATEB consultant and arrange a focussed audit if appropriate.
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About the Author

Steve is an ATEB Director and has a deep understanding of all matter regulatory, built up over his 30 years + in the industry. With a training background and a technical brain, he overseas numerous complex projects and client implementation work.

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