The U.K.’s Financial Conduct Authority (FCA) published an alert on Tuesday that highlights some of the risks authorized firms face when accepting business from unauthorized firms — specifically to generate referrals and leads on potential clients.
As an example, the FCA’s alert says that the registered firm could be on the hook if an unauthorized introducer gives clients unsuitable advice.
“We are very concerned at the increase we have seen in cases in which the introducer has an inappropriate influence on how the authorized firm carries out its business, in particular where the introducer influences the final investment choice,” the FCA’s notice says.
The FCA is also worried about registered firms delegating regulated activities, such as outsourcing their advice process to other firms, the alert states: “Many authorized firms we have visited do not have adequate input or control over the advice they are ultimately responsible for giving to customers.”
In particular, the FCA is concerned about advice that results in clients shifting their pensions to unregulated, high-risk, illiquid products based in the U.K. or overseas.
“Some of these investments are closely linked to or controlled by the introducers and are badly run,” the FCA’s alert states, “while others may be outright scams.”
The FCA’s alert stresses that it’s “essential” for registered firms to “maintain full and complete ownership of the advisory process.”
The alert also calls on authorized firms to carry out robust due diligence on any introducers they deal with; to ensure that they only recommend products that they fully understand; and that they provide independent advice.
“We are co-ordinating our intelligence and supervisory activities on pension scams and unsuitable advice, and will take action as necessary,” the FCA’s alert says, adding that registered firms could face regulatory action for violations committed by outside firms.