Experts are calling on the FCA to do more to shut down unauthorised firms targeting consumers accessing their pensions as Money Marketing research suggests its warning notices are failing.
The FCA’s warning list flags up firms which it believes have been providing financial services or products without authorisation, and those operating clone sites.
Analysis by Money Marketing reveals that of a sample of 100 recently-published warning notices on the FCA website, 83 of the firms marketed their services through a company website. Of those, 49 firms, equating to 59 per cent, currently operate a live website.
Services offered by those with live websites include forex trading, equity release, discretionary management and investment advice.
When Money Marketing carried out the same exercise in August 2013, 74 of the 100 firms promoted their business through a company website. Of those, 31 of the firms still operated active websites, equivalent to 42 per cent.
The FCA has only published one warning about a pension-related firm in the past year.
But a Google search of terms such as ‘pensions access’ or ‘pensions release’ brings up a host of unregulated firms.
And a survey of 1,000 people aged 55 and over carried out by YouGov for Old Mutual Wealth found 15 per cent have been contacted about their pension over the last 12 months with an offer of a free review or financial access to their pension pot.
Pinsent Masons senior associate Michael Ruck, who has previously worked in the regulator’s enforcement division, says: “I am surprised the FCA has not shut down more of the firms it has published warning notices against.
“If there are serious concerns you would expect the FCA to take action to either make the website compliant or prevent the firm carrying out unauthorised business. The FCA should be on the ball with unauthorised pensions firms in particular.”
Philip J Milton & Company managing director Philip Milton says: “If the FCA can publish all of a firm’s details through a warning notice, why doesn’t it use those details to get to the source?
“If it believes a firm is carrying out unauthorised business, it should write to that firm to say it is aware of its activities and is carrying out an investigation. Advisers have to jump through so many rules and regulations just for small transactions like Isas, and yet customers can lose thousands of pounds through unregulated schemes.”
Criminal activity
It is a criminal offence to carry out regulated activities if the firm is not authorised or is exempt. Exempt professional firms undertake some regulated activities as “incidental services” but are not authorised by the FCA. They include solicitors, accountants and chartered surveyors.
It is also a criminal offence for an unauthorised firm to issue a financial promotion. The FCA can prosecute for these offences, issue a winding-up order and claim the proceeds back from the unauthorised firm to redistribute to investors.
It can also apply for injunctions to stop firms carrying out unauthorised activity and firms that do not comply are held in contempt of court.
But experts say it is impossible for the FCA to go to these lengths in every case, and even with additional resources it would still be eluded by some firms.
Regulatory consultancy OAC Consulting senior manager Geoff Spencer says: “The FCA generally won’t succeed where criminal behaviour is concerned, because criminals do not care about a threat or a warning from a regulator. They can change phone numbers, open new websites and move premises if they have to.
“It does not surprise me that half of these firms are still running live websites, because these people are devoted to wrongdoing and are extremely difficult to pin down.”
Law firm Clarke Willmott partner Stephen Searle says: “A warning notice is the first step. If the FCA wants to shut a firm down, it has to take court action which invariably takes time, is expensive, and diverts resources away from other areas.
“The FCA has a statutory obligation to protect consumers, and obviously has to take reasonable steps in that regard, but even with limitless funding it probably wouldn’t be able to stop every unauthorised firm from operating.”
The regulator itself admits it faces serious challenges in shutting down unauthorised businesses.
An email from the FCA to an adviser who alerted it to an unauthorised pensions review firm, seen by Money Marketing, says: “It is extremely difficult to stop unauthorised entities from creating websites and making unsolicited phone calls to consumers. These types of groups tend to move from location to location regularly.
“We do work in conjunction with the relevant police authorities to shut down such operations and to place warnings on our website due to the input we receive from members of the public and other regulatory bodies.”
Ruck says: “The FCA may not regulate the internet or telephone, but it does regulate the activities being carried out through these methods of communication. It still needs to be taking action and cannot just hold its hands up and say it cannot do anything about it.”
ScamSmart
The FCA has taken major steps to notify consumers of the risks of scams ahead of the Government’s pension reforms.
In May, it warned over cold calls from firms offering a free pension review and claiming to represent the Government in its at-retirement guidance service.
In October the regulator launched a national campaign, ScamSmart, to raise awareness of investment fraud.
This week the FCA launched the second wave of the campaign, which urges those accessing the pension freedoms to reject cold calls, check the FCA warning list and get impartial advice from a financial adviser.
FCA chief executive Martin Wheatley says: “The new pension flexibilities will offer people the freedom to make choices that suit their plans for retirement. But this is exactly the time when people need to alert to the dangers of scammers offering opportunities that are too good to be true.”
Law firm King & Wood Mallesons partner Tim Dolan says: “The FCA is doing a lot in this area and it is good that it has seen a risk in the pension freedoms and is taking action before that crystallises.
“Warning notices will be picked up through Google searches, but the onus is still on consumers to look up firms. Consumers have to get into the habit of checking the FCA register and that is a gap.”
Searle says: “Anything the FCA does on its own website is unfortunately unlikely to be seen by the kind of people who are most at risk of being taken in by scams.
“I have seen the ScamSmart page on the FCA’s website, but I have not noticed any TV or radio advertising so it is questionable what impact it will have on the public at large.”
Guidance
Others argue that pension providers and those delivering the Pension Wise guidance service have an important role to play in flagging up the risk of scams.
The FCA’s so-called ‘second line of defence’ rules, published in February, list investment scams as a risk factor that providers must discuss with any consumer looking to access their savings through drawdown or an uncrystallised funds lump sum.
The second line of defence aims to protect consumers who opt-out of guidance, and requires providers to give personalised risk warnings and encourage consumers to use the Pension Wise service.
It is not yet known what the content of the telephone and face-to-face guidance sessions, delivered by The Pensions Advisory Service and Citizens Advice respectively, will be.
But a section on ‘how to avoid a pension scam’ features on the official Pension Wise website. It recommends checking the FCA’s register and gives warning signs of scams.
Citizens Advice chief executive Gillian Guy says: “People already turn to Citizens Advice if they are worried about scams, including around pension liberation and investment fraud.
“Pension Wise guidance will help people get to grips with their pension options and equip them with the knowledge of what to look out for to help them avoid falling victim to scams.”
Ruck says it will be important for guidance providers to flag the risks of using unauthorised firms, and that this needs to be a “prominent” part of the session, which may be a challenge given the sessions are expected to last around 45 minutes.
Old Mutual Wealth pension analyst Adrian Walker says: “The new pension freedoms will signal open season for scammers.
“The FCA’s ScamSmart campaign is something providers can add into their consumer warnings.
“However, it may be difficult for pension schemes to identify scams because some of this will happen outside of the pensions arena – the danger is not so much in the transfer but in what the consumer invests in once they have encashed their pension.”
A spokeswoman for the FCA says: “We receive around 6,000 reports each year about potential unauthorised activity. We try to focus our attention on the matters we believe pose the greatest risk to UK consumers. We have various tools at our disposal for tackling unauthorised firms including the alerts we publish on our website which are specifically for consumers.”
Expert view: FCA is not set up to deal with unauthorised firms
It is the nature of the game that all regulators are better at regulating large, honest organisations. Whatever you might think of the big banks and their various scandals, the fact is that they voluntarily seek authorisation and put forward approved persons, which allows the FCA to hold them to account when they do wrong.
The problem with scams is that they operate under the radar and deliberately avoid the regulator – and the FCA is not set up to deal with that. There is no compliance director or approved person for the regulator to have a dialogue with, so the nature of the engagement is completely different.
The majority of scams are illegal, and I would question whether the FCA is the best part of the Government’s machinery to address that. It is not a crime prevention agency; its remit is to oversee regulated firms.
The police should arguably play a greater role, but they are struggling with resource and would say that each individual scheme is not big enough for them to bother with.
It will almost certainly not be long before we see lurid headlines about consumers who have been victim to pension scams post April. People will get drawn in and that is one of the risks the Chancellor incurred with running ahead with these freedoms without consultation in the Budget.
The problem with a lot of the FCA’s communications is that consumers do not go on the FCA website. However, national journalists do and the FCA is successful in engaging the mass media, which is a cost effective strategy. People with pension pots watch the BBC news and read the Daily Mail, and that is why it is worth the FCA’s while to continue to publish warning notices.
Richard Hobbs is an independent regulatory consultant
Adviser views
Craig Palfrey, certified financial planner, Penguin Wealth
We all, as a profession, need to do more to ensure people don’t get sucked in to investment scams. I don’t feel that anyone can blame the regulator because it is tough to monitor everything that everyone is doing, especially on the internet.
Unfortunately the people that come up with these ideas have no scruples and will do what it takes to make people believe that what they are doing is legitimate. However, our phone and online business has found that more and more people ask telling questions such as: ’Who are you regulated by?’.
Peter Chadborn, director, Plan Money
The FCA is heading in the right direction on raising awareness about scams, but it could do more. It needs to take more action to shut down unauthorised firms once it becomes aware of them.
We also need to get to a place where the default position is for consumers to check the FCA’s register whenever they are contacted by a financial firm. The regulator should be running adverts in the media to inform consumers that anyone giving them pensions advice has to be regulated.
Don’t be daft! Thre aren’t enough prisons to hold all the actuaries who told the poor saps in DB schemes that they could retire gracefully.
First step, which would be trivially easy to implement, would be to ban SIPPs or any other UK pension fund from investing in any investment which is not UK regulated or traded on a recognised stock exchange.
If you want to invest in carbon credits, Brazilian property or storage units, go for it, knock yourself out. Just do it with your own money. There is no reason to drag the UK taxpayer into it.
And as I’ve said before, if someone has to encash the pension fund and write a cheque to the fraudsters, it will give them pause for thought. As opposed to having a “courier” shove some transfer forms under their nose for immediate signature.
Hear hear!
Why not make it a legal requirement that any transfer of all types of pension my be sdviserd by an FCA regulated adviser. The trustee must check the the individual and the company providing the advice are in the FCA register. If this is not the case then they must refuse the transfer. Almost of the scammers are based overseas this will put a stop to the vast majority of them.
Would it be possible to create regulations whereby all pension switches and/or transfers to be signed off by an FCA authorised adviser with the appropriate permissions (I.e. Pension transfer specialist) before the ceding trustees or pension administrators are able to send the cash to a replacement pension plan?