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UK watchdog threatens to shut 'problematic' pensions advisers

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By Reuters

By Huw Jones

LONDON (Reuters) – Britain’s markets watchdog threatened on Tuesday to close “every single advisory firm” that continues to wrongly tell people to cash in their defined benefit pensions.

Megan Butler, executive director of supervision at the Financial Conduct Authority (FCA), said the behaviour among financial advisers was “shocking” and “problematic”.

Lawmakers have criticised the FCA for being too slow to stop advisers telling steelworkers in Wales to cash in their defined benefit pensions that are pegged to salaries rather than the ups and downs of the stock market.

At the time, the steelworkers were faced with several options ahead of an expected company merger. Britain’s pension “freedom” reform mean that people can cash in pension pots.

The FCA has said that in most cases it was best not to transfer a defined benefit pension, but that financial advisers were still recommending transfers in most cases, Butler said. Advisers earn commission if a client shifts a pension into a new financial product.

Butler said the FCA was not being soft on the sector.

“I don’t think we are remotely nice,” she told a Financial Times conference.

“If we have to go to every single advisory firm and, if we have to, we will close them down.”

Butler signalled that a review of how funds must ensure they can meet redemptions was due next week.

It had been delayed to see if the suspension of a fund in June run by Neil Woodford, one of Britain’s highest-profile asset managers, offered lessons.

The Woodford fund remains suspended after it could not meet redemption requests.

Bank of England Governor Mark Carney has said that funds like Woodford that offer daily redemptions are “built on a lie”, but Butler said she disagreed with this view.

The BoE and FCA have begun a separate review of liquidity in funds.

“We need to think quite carefully before we reach for lots of additional regulatory intervention,” Butler said.

Funds could “stress test” themselves better to see how they would respond to many redemptions, she said.

There is also scope for funds to think more carefully about whether an asset in their fund is really liquid, meaning it can be sold quickly to meet redemptions, she added.

She declined to comment directly on Woodford, but said that a rollout in December to asset managers of the FCA’s system of direct accountability should make a difference.

Woodford has not been accused of any wrongdoing and has apologised to his customers.

The Senior Managers Regime (SMR) has already been rolled out at banks and insurers, making it easier for the FCA to pinpoint blame when things go wrong at firms it regulates.

SMR has the capacity to move the industry into a better place,” she said.

(Reporting by Huw Jones; Editing by Alison Williams)