Early in December 2008 the FSA wrote to the Proprietors and Compliance Officers of over 4,500 regulated firms of advisers asking them to assess the advice that the firm had given to customers to switch their pensions since April 2006 (Pensions "A" Day). The FSA has now published its report on the follow-up work carried out during autumn 2009.

The FSA is pleased to report significant changes within the industry delivering improved outcomes for customers and a commitment by a number of firms to past business reviews which will deliver significant redress to customers. However, the report also states that there is still room for improvement in the quality of pension switching advice: some firms had not embraced the need for change and that some were not sufficiently challenging when conducting their own reviews.

As a consequence the FSA will target firms where it suspects there has been an insufficient demonstration of a will to improve outcomes for customers. The FSA notes it has taken disciplinary action and required firms to carry out reviews and pay redress. More action along these lines can be expected.

What’s next?

The FSA will continue to:

focus on high-risk firms through Arrow assessments and through the small firm supervision programme;
assess providers compliance with projection and illustration rules; and
carry out further supervisory work on wider advice issues, including those arising in the lead up to the implementation of RDR.

The FSA warns it will use its full range of regulatory tolls against those firms not meeting its clearly defined standards.

The FSA in their original 2008 report expected each firm to:

consider the approach it has taken in its past sales, reviewing its sales processes, systems and controls for pension sales and, if necessary, examining a sample of individual files;
take appropriate remedial action if failings are identified, including providing redress where necessary;
consider whether the firm should change its approach to advice and sales for the future; and
consider if your management information can tell you whether or not your firm is delivering fair customer outcomes in this area.

Firms need to consider carefully the initiatives they are putting in place to meet the FSA requirements and pay particular attention to the contents of the annex to the FSA's letter, as it sets out the standards the FSA requires for the work.

Every firm will need to:

plan how to undertake the required assessment;
review past and present processes, systems and controls to determine whether they have delivered fair treatment for customers - an independent view is important here. Of course your current compliance people will believe that the existing level of oversight is effective - they would already be doing it differently if they did not, but will the FSA agree?;
decide whether a review of sample individual files is necessary (how do you make that call?) and, if so, how you make that sampling effective;
work through as many individual file reviews as it has decided are necessary;
evaluate whether or not the assessment has revealed any weaknesses, and decide how to correct them;
if the work suggests that some customers may not have been treated fairly, work out how to identify those who might not have been, check them all out, and put right any that need remedial work;
redesign any processes, systems and controls that are not sufficiently robust and train the affected staff to use them;
make sure there is an appropriate level of management information to give confidence that any future problems can be identified quickly and remedied;
be able to handle any complaints received whilst it is undertaking its review, to the standards and in accordance with the time limit in the DISP section of the FSA Handbook; and
consider whether an independent audit of the work carried out is appropriate. OAC can undertake an audit once a firm has carried out its review in order to critique the process and suggest further work, if necessary, to meet the requirements of the FSA and to show that a satisfactory review has been undertaken.

OAC has extensive experience of regulatory expectations in the matter of standards of compliance, and can help you in many ways. Whether you need skilled and experienced people to help you get the work done, a project manager to plan or manage the task, or just help and guidance to give you confidence that you are on track, our commitment to relationship driven consulting means that you can get as much, or as little, help as you need.