Thu. Oct 17th, 2019

Planet Compliance

Innovation & Regulation in Finance

FCA highlights risks about accepting business from unauthorised introducers or lead generators

3 min read

The FCA today issued a statement regarding investment advisers’ and authorised firms’ responsibilities when accepting business from unauthorised introducers or lead generators.

An authorised firm which accepts business from an introducer must meet its regulatory requirements. If customers are given unsuitable advice by an introducer, the authorised firm may be held responsible for this and subject to regulatory action.

Many authorised firms receive customer introductions from introducers. The FCA is very concerned at the increase it has seen in cases in which the introducer has an inappropriate influence on how the authorised firm carries out its business, in particular where the introducer influences the final investment choice. The FCA also has concerns where the authorised firm delegates regulated activities, for example by outsourcing their advice process to unauthorised entities or to other authorised firms that do not have the relevant permissions, or are not their appointed representatives.

 

Help Point

 

Many authorised firms the FCA has visited do not have adequate input or control over the advice they are ultimately responsible for giving to customers. This has been particularly evident in relation to advice on switching and transfer/conversion of pension benefits. The FCA has specific concerns where this advice involves movement of pension pots to unregulated, high risk, illiquid products, whether they are based in the UK or overseas.

Areas of concern identified

  1. Some introducers will use authorised firms’ firm reference numbers (FRN) in obtaining consumer policy information, requesting the information is sent direct to them as an ‘administration office’. This can result in policy information being passed to persons with no right to it and the authorised firm having no control over how that information is used.
  2. Some introducers will present the referral to an authorised firm with a completed fact find, attitude to risk questionnaire, application/transfer forms along with a clear investment desire expressed by the customer.
  3. Some authorised firms will provide a simplified or limited advice process for customers referred to them to facilitate their desired outcome, often with no direct contact with the customer themselves.
  4. Often the simplified or limited advice process is designed by the introducer, including the creation of heavily templated pre-prepared suitability reports provided to the authorised firm with reassurance that the process meets regulatory requirements.
  5. Many of the investment outcomes facilitated by the introducer are without Financial Services Compensation Scheme and Financial Ombudsman Service protection and therefore in our view not suitable for retail clients.
  6. Some of these investments are closely linked to or controlled by the introducers and are badly run, while others may be outright scams.

The full FCA statement and related information as well as contact details for questions and concerns are available here.

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