FCA outlines expectations for DB and DC pension transfers: This week in regulation


The speed read

  • Dear CEO letter issued on DB and DC transfers
  • FCA bids to free mortgage prisoners
  • FCA permanently bans the sale of binary options to retail customers
  • FCA presents final report on retained provisions of the Consumer Credit Act to Parliament
  • UK Benchmarks Register on the way
  • FCA publishes final rules for Brexit no-deal scenario

Dear CEO letter issued on DB and DC transfers 

Having worked over the last year to evaluate the potential harm to consumers from transferring defined benefit (DB) and defined contribution (DC) pensions, the FCA has issued a ‘Dear CEO’ letter addressing what the regulator expects from the advice industry.

A range of areas were covered.


Product design and target market

The customer’s need must be understood and met when transferring from a DB scheme, particularly in light of the pension freedoms introduced in April 2015. Firms must understand their target audiences and be aware of any weaknesses in the support services that need addressing. Senior managers need to be confident that they’re dealing with DB business appropriately.


Information for distributers

Processes must pass through appropriate governance and quality assurance to ensure messages to adviser firms are unbiased and accurate. Measures are expected to be in place according to the Treating Customers Fairly Principle, steering away from making inappropriate recommendations to customers.



Advisers often retrospectively find a case where permissions have been changed or been reviewed. The FCA expects checks to be made to ensure the correct permissions are in place.


Management Information (MI)

MI must be detailed to allow management to understand and manage risks from DB transfers. Metrics that reveal oversight to customer/adviser behaviour need to be in place and be able to identify any negative trends. MI must also be assessed for completeness, including transfers accepted through platforms. Negative trends must be investigated and reported to the FCA.



This must have the customer’s best interest at heart and not necessarily be measured entirely on the performance from frontline staff.



Firms should consider completing second and third line reviews of DB activity to assess controls and mitigate risk, including any follow-up work that’s required as a result. In addition, documents and tools that are given to advisers must be up to date and include all relevant information to provide a balanced view of the benefits and drawbacks of DB and DC pension transfers.


FCA bids to free mortgage prisoners

Currently, customers who successfully keep up with their mortgage payments don’t always have the freedom to switch mortgages. These ‘mortgage prisoners’ could soon be able to find a cheaper deal, following FCA proposals to change the way lenders assess affordability.

The regulator’s Mortgage Market Study revealed that while the market is working well in many respects, there is room for improvement. A package of remedies has been designed to respond to this which includes:

  • Lenders participating in using innovative tools that help customers see what mortgages they qualify for
  • A proposal for the Single Financial Guidance Body (SFGB) to introduce mortgage intermediaries to its retirement adviser directory (the Money Advice Service)
  • A consultation on proposals to change mortgage advice rules to encourage innovation
  • An in-depth analysis into cases where customers don’t switch mortgage to inform any necessary intervention.

The FCA wants to see lenders being able to proportionally assess customers who are up to date with their payments and seeking to move to another provider without further borrowing. The regulator is concerned about customers of inactive lenders and entities not authorised for mortgage lending – these lenders will be required to identify eligible customers and contact them.


FCA permanently bans the sale of binary options to retail customers

The FCA has banned the selling, marketing and distributing of binary options to retail customers following a consultation with the aim to rise up against the inherent risks of the products and the poor conduct of firms selling them.

These rules are in essence the same as existing ESMA legislation, apart from ‘securitised binary options’ which the FCA additionally covers. These are not currently sold in the UK but the regulator has included them in order to prevent a market emerging which could raise risks to investors.

The rules come into place on the 2nd April 2019 and could save retail consumers up to £17 million a year.


FCA presents final report on retained provisions of the Consumer Credit Act to Parliament

The FCA was required to report on the Consumer Credit Act (CCA) and has now done so to help consider which CCA provisions should be replaced by FCA rules and the principle that a burden or restriction of an activity should be proportionate to the benefits. The report follows three themes:


Rights and protections

This includes credit brokerage fees, connected lender liability, variation of agreements, default and enforcements, credit-tokens, pawnbroking, withdrawal and cancellation, early repayment, termination, time orders and unfair relationships.

The FCA considers these views to still be of importance and will continue to largely be governed by the CCA. Some provisions could be replaced by FCA comparable rules but, on the whole, most rules could not be repealed without adversely affecting customer protection.


Information requirements

These include pre-contract disclosure, the form and content of agreements and the provision of copy documents. They also include post-contractual requirements such as statements and notices. Some of these must be provided periodically, or when triggered, while others apply only upon request.

The FCA enthused that the framework provides information to customers and continues to provide customer protection. It also noted the different characteristics of the consumer credit market and the importance of striking the balance between prescriptive regulation and principles-based requirements.

In this vein, the regulator sees the potential to shift some rules to its more principle-based approach. It sees merit in repealing the relevant information requirements with a view to replace them with FCA rules.



The FCA’s view remains that the ‘self-policing’ nature of the sanctions of unenforceability and disentitlement to interest and default sums contributes significantly to ensuring key customer information needs are met.

This incentivises firms to remain compliant and deters against non-compliance cases where there’s a risk of causing harm to vulnerable customers.

The FCA considers a combination of its ruling with CCA as well as the private right of action under FSMA. Repealing these provisions cannot be done without adversely affecting customer protection, therefore current CCA legislation should remain. That said, the FCA noted that CCA rules are often open to interpretation, therefore the scope of sanctions should be focused on breaches that are likely to cause material harm to consumers – particularly vulnerable ones.

Defining enforceability is important and the report suggests expanding the FCA’s rule-making powers to allow for enforceability and disentitlement as sanctions for breach of relevant FCA rules.

Finally, given the FSMA regulatory requirements, criminal offences in the CCA are no longer needed. The FCA has a range of disciplinary powers that can be used for authorised firms.

Decisions of the future of CCA provisions will now fall to the Government.


UK Benchmarks Register on the way 

As the FCA maps out a potential no-deal Brexit the regulator has developed a new UK Benchmarks Register to replace the ESMA Register. This will cover UK supervised users and UK third-country-based benchmark administrators who will still want their benchmarks to be used on British soil.

The Benchmarks Administrators Register is publicly available and reports all benchmark administrators that are recognised, authorised or registered with the FCA and are outside the UK, that have told the regulator that they benefit from an equivalence decision adopted by the UK. This includes all instances of administrators that appear in the ESMA register.

The third-country Benchmarks Register consists of benchmarks that are recognised by the FCA and endorsed by a UK authorised or registered benchmarks administrator or supervised entity for use in the UK. Again, this includes instances that appear in the current ESMA register.

These entries from the ESMA register will appear for two years unless they’re removed in accordance to UK Benchmarks Regulation. The FCA is keen to keep firms informed of any further developments.


FCA publishes final rules for Brexit no-deal scenario

The FCA has published its final instruments and guidance that will apply in the event of the UK leaving the EU without a deal or implementation period.

The rules contain a package of documents that follow the regulator’s Policy Statement with near-final instruments in February, most of which fall under the FCA under the EU (Withdrawal) Act. The details of these are largely unchanged, bar amends to stating the ‘29th March’, which now appears as ‘exit day’.

Final transactional directions and guidance for using the transitional power have also been published, with some amends from February’s near-final rules. These relate to:

  • UK managers of EEA UCITS funds
  • The application of the Client Assets Sourcebook (CASS) to activities carried on from an EEA branch
  • The distance marketing provisions.

Further information will be published by the FCA for capital requirements, banking and financial conglomerates once the PRA publishes similar information.

Latest Insights


The latest insights and regulatory analysis straight into your inbox

Find out more

How can we help?

Speak to a culture and conduct risk expert today

Contact us

Find out more about our unique RegTech solution at