The year-long gap between advisers falling off the FCA register and being included on the new directory could raise significant challenges for advised defined benefit (DB) pension transfers for a 12-month period.
Last week the Financial Conduct Authority (FCA) revealed there would be a 12-month period between December 2019 and December 2020 when advisers will not be searchable on any regulated public register or directory.
Advisers who are not held to be ‘senior managers' under the regulator's incoming Senior Manager & Certification Regime (SM&CR) will be taken off the financial services register on 9 December 2019 when the regulation comes into play.
At the same time, advisers will not appear on the new directory, which will hold information on every single financial adviser, until December 2020. This means there will be a whole year where advisers cannot be searched by consumers on an official, regulated database.
It is not just consumers who will be unable to search for information on advisers, however. Guidance from The Pensions Regulator (TPR) states pension scheme trustees must check an adviser has the correct permissions to carry out pension transfer activity before allowing a transfer to proceed.
According to TPR's policy document, Regulatory guidance on DB to DC transfers and conversations, dated April 2015: "When the trustees have received the confirmation that appropriate independent advice has been received, and before the transfer is made, they must check that the adviser has the correct permission to carry on the regulated activity. This can be done by verifying details on the Financial Services register maintained by the FCA.
It added: "If advice is received from an adviser whose firm is not on the FCA register, then the trustees must not transfer the member's benefits.
"Where trustees are suspicious, they should contact the firm purporting to have given the written confirmation directly to check that firm has submitted the written confirmation. For this purpose, trustees can use the contact details for the firm in the ‘basic details' section of the financial services firm search on the FCA Register."
On 13 March, Professional Pensions and its sister publication, Professional Adviser, reported DB transfers may be unable to happen during the 12-month gap in the directories. However, after the FCA twice failed to deny this would be the case in providing comment for publication, it eventually confirmed that TPR's guidance refers to advice firms, rather than financial advisers themselves.
And, because firms will remain on the register during the 12-month directory gap, this will still be possible.
An FCA spokesperson, in the regulator's third response to Professional Adviser, said: "The text above is referring to firms and their permissions. These will continue to be listed on the Register without interruption.
"If firms wish to get information about individuals they can currently check the Register but this is only one option open to them. They can also use the basic details section on the Register to contact the firm, as suggested in the guidance."
'An integral part of the process'
Broadstone technical director David Brooks said the register was an integral part of the pension transfer process and, if pension scheme trustees were unable to check the credentials, transfers would not go ahead.
"Trustees have to check the register," Brooks explained. "For a transfer valued over £30,000 you need financial advice, and part of that process - as mandated by the regulator - is to check the FCA register that the person giving the advice has the right permissions to do it, or that those permissions haven't been removed.
"If trustees can't check, then they aren't going to be able to make the transfer, because they can't be sure the member has had regulated financial advice. If the register isn't there, then the DB transfers will just stop. It's as simple as that."
However, Aon partner David Bunkle said: "Where the trustees or company has appointed a preferred or paid-for adviser, they will have been able to confirm they have the right permissions to advise on DB transfers as part of the appointment process. So this means there should be no issues for bulk exercises or business as usual transfers where an IFA has been appointed by the scheme.
"We also believe that this could be a prompt for some clients to select a preferred IFA. We know from experience that this makes the admin easier in a number of ways."
'We will be updating our guidance'
A TPR spokesperson told Professional Adviser it would be updating its guidance: "We are aware of the FCA's announcement and will update our guidance on this matter later this year," they said.
At this stage, TPR was unable to give any further indication of what the new guidance might involve.
The FCA said: "The FCA is aware of this issue and as part of our work to create the directory we will be ensuring that there is appropriate public information about advisers available to consumers during the period before the directory goes live."
The FCA added trustees would still be able to use the basic details section on the register to contact the advisory firm and independently verify that the adviser has the correct permissions.
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