It is worth bearing in mind that complaint resolution can be a lengthy process; it can take a year for cases referred to the Fos to reach an initial decision and, if the case is then referred to an ombudsman, a final decision may take a further 12-18 months.
Firms are required to have adequate financial resources at all times. This may mean that they need to incorporate margins for prudence into their estimated redress figures or revisit their redress calculations regularly.
Firms that choose the latter will need to be able to identify every scenario in which redress could increase, or seek actuarial support to help them.
4. It will be permissible to allow for professional indemnity insurance cover in the calculations.
This may prove a pragmatic solution for some firms; for example, they may be able to set aside sufficient capital to cover their policy excess on each unresolved or prospective redress case.
However, it will be important to be mindful of exemptions, for example some policies exclude DB transfer advice written to younger individuals, and limits of cover.
As noted, redress on a pension transfer can be significant, so there may well be instances where the PII cover is not sufficient to meet all potential redress liabilities.
5. The probability factor built into the calculations will (in the absence of specific agreement from the FCA) need to be at least 28 per cent. However, a higher percentage (leading to higher capital) will be required if a firm has reason to believe that applying the 28 per cent figure would understate its exposure to future redress.
This could be the case if the firm knows that a higher proportion of past complaints against it have been upheld.
It can be difficult to defend against complaints about DB pension transfers, particularly where the advice was given some time ago; gaps in data often mean that the adviser is unable to demonstrate suitability of advice.
There is scope therefore for the probability factor to be significantly higher than 28 per cent, particularly for firms that advised on a DB transfer.
There is also scope for the probability factor to change over time (as complaints are received and resolved), resulting in unexpected swings in capital requirements.
6. As part of its narrative about potential future regulatory regimes for personal investment firms, the FCA moots the need for higher capital requirements based on the activities conducted by a given firm.
This would mean that firms that have given high-risk pensions transfer advice would see increased capital requirements, as well as potentially higher liquidity requirements.
Given the above, firms may revisit their offering and decide to cease providing pensions transfer advice. This would have implications right across the financial advice and pensions industries.
