The Financial Conduct Authority (FCA) has fined David Watters £75,000 for failing to exercise due skill, care and diligence in his role as compliance oversight officer, firstly at FGS McClure Watters (FGS) and then Lanyon Astor Buller Ltd (LAB).
Following an investigation, the FCA found that Watters failed to take reasonable steps to ensure that the process in place at FGS and LAB, for giving advice on Enhanced Transfer Value (ETV) pension transfer exercises, was adequate and met regulatory standards. This led to a serious risk of unsuitable advice being given to customers of FGS and LAB about the merits of transferring their pension, from a defined benefit (DB) to a defined contribution (DC) scheme, as part of an ETV pension transfer exercise.
Approximately 500 customers that received advice from FGS or LAB transferred their pensions from a DB scheme to a DC scheme, with a combined value of approximately £12.7 million. In many cases, it may have been unnecessary for customers to leave their DB schemes, thereby losing their guaranteed benefits.
Watters failed to give sufficient consideration to whether the advice process was compliant; he did not take reasonable steps to gain a sufficient understanding of the relevant regulatory requirements; and did not obtain an appropriate third party review of the processes to ensure compliance. Watters also failed to take reasonable steps to ensure that advisers were properly monitored to reduce the risk of unsuitable ETV pension transfer advice being given to customers.
ETV exercises incentivise customers to transfer their pensions. During these exercises, it is vital that customers considering giving up their guaranteed benefits are given suitable advice on the real benefits and consequences so that they can properly conclude whether a transfer is in their best interests.
Mark Steward, executive director of enforcement and market oversight, said: “It was Mr Watters’ responsibility to take reasonable steps to put in place a compliant advice process. His failure to do this placed customers at risk of needlessly losing valuable benefits for their retirement.”
LAB has agreed to contact affected customers and where loss has been caused, it will pay appropriate redress.
Gary Dixon, a partner with compliance consultants MomentumGRC, said: “While many, many firms have been fined in the past for compliance failings, and indeed some have been fined repeatedly, the singling out here and fining of an individual compliance officer for such a large amount is a game changer.
“The clear message to regulated firms is that compliance needs to be a boardroom issue and they can’t simply dump it on one person and forget about it.
“In my experience the vast majority of compliance officers do a good job in difficult circumstances, but the FCA is clear that however good a job they think they are doing, when areas are complex or contentious, they need to get an independent check to verify suitability or risk serious comebacks later on. For those officers who are out of their depth and struggling, they need to act quickly to prevent a similar misfortune for them and their firm’s clients. Robust systems are needed alongside a strong independent assessment as the best way of demonstrating their firm is meeting standards.”