1

FINAL NOTICE

To:
Vintage Investment Services
(as an interested party)

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby:

(1)
imposes on Steven Lawrence Hodgson (“Mr Hodgson”) a financial penalty of

£32,700 pursuant to section 66 of the Act. A penalty of £386,306 would

have been imposed, however; the Authority has prioritised redress

payments to the Financial Services Compensation Scheme (FSCS); and

(2)
makes an order, pursuant to section 56 of the Act, prohibiting Mr Hodgson

from performing:

(a) any function in relation to the regulated activity of advising on Pension

Transfers and Pension Opt-outs carried on by an authorised person, exempt

person or exempt professional firm;

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(b) any Senior Management Function in relation to any regulated activities

carried on by an authorised person, exempt person or exempt professional

firm; and

(3)
withdraws, pursuant to section 63 of the Act, the approval granted to Mr

Hodgson by the Authority under section 59 of the Act to perform the SMF27

(Partner) Senior Management Function at Vintage Investment Services

(“Vintage”).

1.2. The Authority would have imposed a disgorgement figure of £245,691. The interest

on this figure would have been £107,915. The punitive element of the penalty would

have been £46,700. Mr Hodgson agreed to resolve all issues of fact and liability under

the Authority’s executive settlement procedure and he therefore qualified for a 30%

(stage 1) discount to be applied to the punitive element of the penalty, reducing the

punitive element of the penalty to £32,700.

1.3. The Authority recognises that there may be a significant liability for redress for

Vintage’s customers which will fall to be paid by the FSCS. The amount of any such

liability is currently £917,716.65 and is likely to increase significantly as claims

continue to be received. In these circumstances, and in furtherance of the consumer

protection objective, in order to maximise funds available for consumer redress, the

FCA will forgo any sum, otherwise owing by way of disgorgement, which has been

made available to the FSCS by the partners of Vintage. The punitive element of the

penalty is to be paid direct to the FSCS for the purpose of consumer redress.

2.
SUMMARY OF REASONS

2.1.
The Authority takes this action against Mr Hodgson for breaches of Statement of

Principle 2 and Statement of Principle 7 of the Authority’s Statements of Principle

and Code of Practice for Approved Persons (APER) that occurred between 26

January 2016 and 12 December 2017 (the Relevant Period).

2.2.
The breaches relate to Mr Hodgson’s failure to ensure that Vintage provided

suitable Pension Transfer advice to its customers that complied with the relevant

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requirements and standards of the regulatory system, as well as his incompetent

oversight of the firm’s Defined Benefit Pension Transfer advice process. As a

result, customers were advised to transfer funds out of their Defined Benefit

Pension Scheme against their best interests and their retirement funds were

unnecessarily put at risk.

2.3.
The breaches also relate to advice provided by Mr Hodgson, as a Pension Transfer

Specialist, to customers to transfer out of their occupational Defined Benefit

Pension Scheme (including the British Steel Pension Scheme), into alternative

pension arrangements.

2.4.
Mr Hodgson was one of two partners at Vintage. Throughout the Relevant Period

Mr Hodgson was approved by the Authority to perform the Controlled Functions

of CF4 (Partner) and CF30 (Customer). Mr Hodgson was also a qualified Pension

Transfer Specialist.

2.5.
The Authority expects Pension Transfer Specialists to understand the regulatory

requirements of the role, which include checking the entirety and completeness

of the Personal Recommendation to the client and ensuring and confirming that

any Personal Recommendation is suitable for the client. It is very important that

DBPS customers receive suitable advice when deciding whether to make a Pension

Transfer.

2.6.
A Defined Benefit Pension, also known as a final salary pension, provides a

guaranteed lifetime income that usually increases each year in order to protect

against inflation. It may also continue to be paid to the partner of the recipient at

a reduced rate when the recipient dies. A Defined Benefit Pension is particularly

valuable because an employer sponsor carries the financial burden associated with

offering a secure, guaranteed retirement income for life to members.

2.7.
This is in contrast to a Defined Contribution pension, whereby employer and

employee capital contributions are invested, so that a fund is built up which may

be accessed after the age of 55; however, the investment and mortality risk are

borne by the member. Defined Contribution Pension Schemes may be either

occupational (work) or personal schemes.

2.8.
Mr Hodgson was responsible, in his performance of the CF4 (Partner) function, for

taking reasonable steps to ensure the operation of a Defined Benefit Pension

Transfer advice process that was compliant with the Authority’s Rules, including

ensuring that the process covered adequate compliance checking of customer

files. However, he failed in his capacity as a partner to provide adequate oversight

of the Pension Transfer advice process, including failing to implement an advice

process that met the relevant requirements and standards of the regulatory

system.

2.9.
Mr Hodgson also failed to take reasonable steps to ensure that Vintage organised

and controlled its affairs responsibly and effectively, with adequate risk

management systems, in respect of ensuring that Vintage complied with the

relevant Rules and requirements of the regulatory system.

2.10.
Mr Hodgson also provided unsuitable Pension Transfer advice himself in his

capacity as a Pension Transfer Specialist, against the best interests of customers.

This resulted in customers’ retirement funds being unnecessarily put at risk.

2.11.
Vintage’s customers who transferred out of their Defined Benefit Pension Schemes

were at a significant risk of loss as a result of Vintage’s unsuitable Pension Transfer

advice. The total value of customer funds transferred out of their Defined Benefit

Pension Schemes was £70,250,492. Of that figure, approximately £34,950,530

(or 49.8%) represents the sum transferred away from the BSPS.

2.12.
The average completed transfer value was £420,662.63 (£375,812.15 for British

Steel Pension Scheme members). 132 of Vintage’s Pension Transfer clients

continued to pay Vintage for ongoing advice which, in cases where a Pension

Transfer was wrongly recommended, represented a further and ongoing loss to

customers. For some customers, their Defined Benefit Pension Scheme was their

only retirement provision other than their state pension.

2.13.
During the Relevant Period, Vintage advised 165 customers (consisting of 167

instances of advice) on whether to transfer out of their Defined Benefit Pension

Schemes into an alternative pension arrangement. Notwithstanding guidance

from the Authority that set out as a starting point a presumption of unsuitability

in respect of advising a client to transfer out of their Defined Benefit Pension

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Scheme, Vintage advised 162 of these customers (approximately 97%) to

complete a Pension Transfer. Of the 167 customers, 93 (56%), were members of

the British Steel Pension Scheme.

2.14.
One BSPS customer who was advised by Vintage to transfer out of their Defined

Benefit Pension Scheme was going through a divorce, and their assets were yet

to be split. There is no evidence that this was considered during Vintage's

suitability assessment. Vintage assessed the customer's risk capacity as 'cautious

to moderate', with low knowledge and experience. Other than company shares

and their pension schemes, the customer had no other savings and investments,

and was therefore reliant upon the income from their Defined Benefit Pension

Scheme. Despite this, the customer was given unsuitable advice by Vintage to

transfer out of their Defined Benefit Pension Scheme into another arrangement.

2.15.
In another case, Mr Hodgson failed to collect sufficient information regarding the

customer's prospective retirement expenditure, and details regarding their

partner's retirement objects and retirement income. An adequate assessment of

the customer's attitude to risk therefore could not be made, as he did not capture

sufficient information to demonstrate that the customer had the necessary

knowledge and experience to understand the transfer risk.

2.16.
Although the firm created an expenditure spreadsheet, this did not factor in the

customer's lack of savings and credit card debt. Its figures were therefore

inconsistent with the customer's recorded expenditure. As a result, it was not

possible to assess the suitability of the pension transfer advice. These information

collection failings were particularly concerning given that the customer had no

savings or investments other than their pension schemes.

2.17.
The unsuitable Pension Transfer advice that Vintage provided to customers under

the responsibility and oversight of Mr Hodgson disproportionately affected

members of the British Steel Pension Scheme. Some of this advice was provided

by Mr Hodgson himself in his capacity as a Pension Transfer Specialist. Members

of the British Steel Pension Scheme made up 56% of Vintage’s Pension Transfer

advice customers during the Relevant Period. Many of these individuals were in a

vulnerable position due to the uncertainty surrounding the future of the British

Steel Pension Scheme.

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2.18.
It was therefore critical that they could depend on Vintage to provide them with

suitable Pension Transfer advice that was clear, fair and not misleading. It was

also crucial that the advice was in their best interests. Unfortunately, many of the

British Steel customers did not receive the suitable advice they needed from

Vintage to be able to make a sufficiently informed decision about their Pension

Transfer.

2.19.
The Authority has carried out significant work in response to the harm caused to

members of the British Steel Pension Scheme by authorised firms providing

unsuitable Pension Transfer advice. The Authority has taken intervention action

in the form of requirements to vary permissions to stop ongoing harm at relevant

firms and has initiated enforcement action against culpable firms and individuals,

including Mr Hodgson.

2.20.
The Authority reviewed a statistically representative sample of 21 of Vintage’s

completed Pension Transfer advice files from the Relevant Period. For a significant

proportion of these customers their Defined Benefit Pension was their most

valuable asset and some customers had limited additional resource or alternative

pension provision. During the course of its file review the Authority found that a

large proportion of files reviewed were not compliant with regulatory Rules

relating to the suitability of Pension Transfer advice. The Authority also reviewed

files that contained material information gaps such that the adviser should not

have proceeded to provide advice to the customer. Overall, the Authority assessed

11 of the files to contain unsuitable Pension Transfer advice, and three to contain

material information gaps.

2.21.
Mr Hodgson was responsible, in his performance of the CF4 (Partner) function, for

ensuring that Vintage took reasonable steps to organise and control its affairs

responsibly and effectively, with adequate risk management systems, in respect

of the operation of a Defined Benefit Transfer advice process that was compliant

with the Authority’s rules.

2.22.
In performance of his role as a CF30 (Customer) adviser, Mr Hodgson was

required to act with due skill, care and diligence in providing Pension Transfer

advice to customers regarding the transfer of funds out of their Defined Benefit

Pensions. As a qualified Pension Transfer Specialist, he should have brought an

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added degree of expertise and knowledge to his role as a customer adviser, but

he failed to do so.

2.23.
The Authority considers that, during the Relevant Period Mr Hodgson failed to act

with due skill, care and diligence in his capacity as a CF30 (Customer) adviser

because he failed to obtain information that was necessary for him to assess

whether a Pension Transfer was suitable for the customer. This information was

necessary to be able to understand essential facts about the customer and to have

a reasonable basis for believing that the transaction to be recommended was in

the customer’s best interests.

2.24.
The Authority considers that Mr Hodgson breached Statement of Principle 2 during

the Relevant Period by failing to exercise due skill, care and diligence when

advising customers on Pension Transfers because the advice he provided did not

comply with regulatory requirements. In particular, Mr Hodgson:

(1) failed to obtain sufficient information about the customers to be able to assess

suitability;

(2) failed to properly assess whether the customers were reliant on the income

from their DBPS and whether they could financially bear the risks involved in

a Pension Transfer, despite knowing that following the recommended transfer,

customers’ retirement income would be dependent on the performance of the

new investment;

(3) failed to properly assess whether the aims which drove the Pension Transfer

recommendation were in the best interests of the customer. He based his

recommendations on the flawed assumption that a Pension Transfer to meet

the customers’ stated objectives was in the customers’ best interests, despite

some customers’ objectives being either unviable or capable of being met by

the DBPS;

(4) failed to investigate whether alternative options to a Pension Transfer could

meet the customers’ objectives, while remaining in the DBPS;

(5) failed to obtain the necessary information from customers as to whether they

had the appropriate knowledge, experience and attitude to risk to understand

the risks involved in the Pension Transfer;

(6) failed to ensure that the transfer analysis supported a recommendation to

transfer out of the Ceding Arrangement; and

(7) failed to ensure that the documentation issued to customers put them in a

sufficiently informed position and was clear, fair and not misleading. For

example, a Suitability Report issued to one customer did not specify that the

benefits under the Pension Protection Fund would most likely meet the

customer’s needs. Further, the investment report misleadingly suggested

unrealistic returns.

2.25.
The Authority also considers that Mr Hodgson breached Statement of Principle 7

during the Relevant Period because he failed to take reasonable steps to ensure

that Vintage complied with Principles 3, 7 and 9 of the Authority’s Principles for

Businesses and the relevant COBS Rules. In particular, Mr Hodgson:

(1) failed to undertake any analysis of management information regarding the

Personal
Recommendations
produced
by
Vintage’s
Pension
Transfer

Specialists;

(2) failed to implement a process to challenge the reasons why almost all

customers were recommended to transfer out of their Defined Benefit Pension

Scheme, despite the starting point being the presumption that transferring out

and giving up those benefits is unlikely to be suitable for a customer. That is

the default position unless the adviser can clearly demonstrate, on

contemporary evidence, that the transfer, conversion or Opt-out is in the

customer’s best interests;

(3) failed to arrange for an increased level of compliance support knowing of the

limitations of the firm’s compliance process; and

(4) failed to ensure that appropriate compliance resources were in place to deal

with the increased demand for Pension Transfer advice during 2017.

2.26.
The combined effect of Mr Hodgson’s failings created a significant risk of

unsuitable Pension Transfer advice being provided to the firm’s customers.

Accordingly, the Authority considers Mr Hodgson’s breaches of Statement of

Principle 2 and Statement of Principle 7 to be particularly serious because:

(1) Defined Benefit Pensions and the decision to transfer out of the Ceding

Arrangement concern financial investments for which a customer’s advice

needs are high;

(2) The decision to transfer out of a DBPS can affect customers, and sometimes

their dependants, for the rest of their lives. For some of Vintage’s customers,

their Defined Benefit Pension was their only retirement provision other than

their state pension;

(3) Vintage’s unsuitable Pension Transfer advice caused a significant risk of loss,

as well as causing actual loss, to consumers who transferred out of their

Defined Benefit Pension Scheme as a result of that advice;

(4) 132 of Vintage’s Pension Transfer customers continued to pay Vintage for

ongoing advice which, in cases where a Pension Transfer was wrongly

recommended, represents a further and ongoing loss to customers;

(5) The failings disproportionately impacted British Steel Pension Scheme clients,

many of whom were in a vulnerable position due to the uncertainty

surrounding the future of the scheme;

(6) Mr Hodgson benefited substantially from the breach. The high rate of non-

compliance by the firm with the COBS Rules which characterised that advice

means that a significant proportion of Mr Hodgson’s total income from the

advice is attributable to his breaches; and

(7) The weakness in Vintage’s Pension Transfer advice process, as well as the

monitoring and checking procedures, for which Mr Hodgson was responsible

as a partner of the firm, were systemic.

2.27.
The Authority would have imposed a penalty of £386,306 but has prioritised FSCS

recovery of funds over enforcement of the disgorgement amount. Mr Hodgson

agreed to resolve this matter and qualified for 30% discount on the punitive

element, amounting to £32,700.

2.28.
The Authority considers that Mr Hodgson’s misconduct during the Relevant Period

demonstrates a serious lack of competence and capability and accordingly a lack

of fitness and propriety.

2.29.
The Authority hereby makes a prohibition order in respect of Mr Hodgson,

prohibiting him from performing any function in relation to the regulated activity

of advising on Pension Transfers and Pension Opt-outs carried on by an authorised

person, exempt person or exempt professional firm, and any Senior Management

Function in relation to any regulated activities carried on by an authorised person,

exempt person or exempt professional firm.

2.30.
The Authority hereby withdraws the approvals granted to Mr Hodgson to perform

the SMF27 (Partner) Senior Management Function at Vintage.

3.
DEFINITIONS

3.1.
The definitions below are used in this Final Notice:

“the Act” means the Financial Services and Markets Act 2000.

“the Authority” means the Financial Conduct Authority.

“the Authority’s Rules” or “the Rules” means the Authority’s Conduct of Business

Sourcebook as applicable during the Relevant Period.

“British Steel Pension Scheme” or “BSPS” means the British Steel Defined Benefit

Pension Scheme that was in place during the period 26 January 2016 to 13

December 2017.

“CETV” means cash equivalent transfer value, which is a lump sum available to

the member upon transferring their pension benefits into an alternative pension.

It is calculated according to actuarial principles.

“COBS” means the Conduct of Business Sourcebook in the Authority’s Handbook.

“Defined Benefit Pension Scheme,” “Defined Benefit Pension” or “DBPS” means

an occupational pension that pays out a defined benefit or guaranteed specified

amount to the pension holder based on factors such as the number of years

worked and the customer’s salary.

“Defined Contribution” or “DC” means a pension that pays out a non-guaranteed

and unspecified amount depending on the defined contributions made and the

performance of investments.

“DEPP” means the Authority’s Decision Procedure and Penalties Manual.

“EG” means the Authority’s Enforcement Guide.

“the Handbook” means the Authority’s Handbook of rules and guidance.

“Insistent Client” means a client who has been given a personal recommendation

by a firm in relation to the transfer of their safeguarded benefits, but who has

decided to enter a transaction different from that which was recommended and

wishes the firm to facilitate this.

“Normal Retirement Date” means the date (typically linked to the customer’s age,

for example 65) on which the pension scheme is due to pay the customer their

member benefits.

“Pension Protection Fund” or “PPF” means a statutory public corporation which

protects people with a defined benefit pension when an employer becomes

insolvent. If the employer does not have enough funds to pay the pension they

promised, the PPF will provide compensation instead. However, some reduction

may apply.

“Pension Transfer” means a transfer payment made in respect of any safeguarded

benefits with a view to obtaining a right or entitlement to flexible benefits under

another pension scheme.

“Pension Transfer Specialist” has the meaning given in the Handbook and includes

an individual appointed by a firm to check the suitability of, amongst other things,

a Pension Transfer, who has passed the required examinations as specified in the

Training and Competence Sourcebook, part of the Handbook.

“Personal Recommendation” means advice on transfer of Defined Benefit Pension

Scheme benefits into an arrangement with flexible benefits, explaining amongst

other things why the firm has concluded that the recommended transaction is

suitable for the customer.

“Preferred Retirement Date” means the date when the customer plans to retire.

“the Principles” means the Authority’s Principles for Businesses set out in the

Authority’s Handbook.

“Regulated Apportionment
Arrangement” or
“RAA”
means
the
statutory

mechanism that can be used in corporate restructuring whereby a sponsoring

employer of a DBPS stops participating in the pension scheme (therefore freeing

the sponsoring employer from its financial obligations to the pension scheme) in

order to avoid insolvency, subject to certain conditions being met and the RAA

being approved by The Pensions Regulator and the PPF.

“the Relevant Period” means the period of 26 January 2016 and 12 December

2017.

“SIPP” means Self-Invested Personal Pension.

“Statements of Principle” mean the Authority’s Statements of Principle and Code

of Practice for Approved Persons issued under section 64A(1)(a) of the Act.

“Suitability Report” means the report which a firm must provide to its customer

under COBS 9.4.1R which, amongst other things, explains why the firm has

concluded that a recommended transaction is suitable for the customer.

“Tribunal” means the Upper Tribunal (Tax and Chancery Chamber).

“TVAS” means “Transfer Value Analysis” and is the comparison that a firm was

required to carry out in accordance with COBS 19.1.2R prior to 1 October 2018,

when a firm gave advice or a Personal Recommendation about, amongst other

things, a Pension Transfer.

“TVAS Report” means a document that sets out for the customer a comparison of

the benefits likely (on reasonable assumptions) to be paid under the Ceding

Arrangement with the benefits afforded by the Proposed Arrangement, which

firms were required to carry out in accordance with COBS 19.1.2R (and prepare

in accordance with COBS 19.1.3R and 19.1.4R) prior to 1 October 2018.

“Vintage” or “the firm” means Vintage Investment Services.

4.
FACTS AND MATTERS

4.1.
Vintage is an Independent Financial Adviser firm based in Stockton-on-Tees and

is an unlimited liability partnership. Vintage was authorised by the Authority on 1

December 2001, and by its predecessors since 1988. At the start of the Relevant

Period, Vintage held permissions to carry on regulated activities which included

advising on Pension Transfers, advising on investments and arranging (bringing

about) deals in investments. There were several Pension Transfer Specialists at

Vintage who provided Defined Benefit Pension Transfer advice, including the two

partners.

4.2.
During
the
Relevant
Period,
Vintage
advised
165
customers
on

Pension Transfers from their Defined Benefit Pension Scheme to an alternative

pension arrangement. Two customers had two Defined Benefit Pension Schemes,

resulting in 167 instances of Pension Transfer advice.

4.3.
The Authority’s guidance states that, given the valuable nature of the guaranteed

benefits provided by a Defined Benefit Pension Scheme, an adviser’s starting point

should be the assumption that transferring out and giving up those benefits is

unlikely to be suitable for a customer. Notwithstanding that guidance,

162 customers were advised by Vintage to make a transfer, and 161 customers

followed this advice.

4.4.
On 12 December 2017, the Authority visited Vintage’s offices to find out more

about the process followed by Vintage when advising BSPS members. The

Authority’s assessment of Vintage’s Defined Benefit Pension Transfer work

identified concerns with the firm’s Pension Transfer advice process. Following

initial feedback from the Authority provided the same day, Vintage provided the

Authority with an immediate undertaking to cease all Defined Benefit Pension

Transfer advice.

4.5.
On 14 December 2017 following the Authority’s intervention, Vintage then applied

for the imposition of voluntary requirements that required it to cease all regulated

activities relating to Defined Benefit Pension Transfer advice. As a result of

engagement with the Authority and improvements made by Vintage to its

business model and processes, the voluntary requirements were removed on 29

November 2018.

4.6.
On 15 May 2020, following the completion of the Authority’s file reviews, the

Authority asked for an undertaking from Vintage to cease its provision of Defined

Benefit Pension Transfer advice. On 1 June 2020 Vintage voluntarily applied to

remove its permissions to carry out all regulated activities relating to Pension

Transfers on a permanent basis, having ceased DB pension advice in February

2020. The partners agreed a Partners’ Voluntary Agreement in June 2022.

4.7.
Mr Hodgson has worked in the financial services industry since 1994, having

qualified as a financial adviser in 1996 and Pension Transfer Specialist in 1998.

Mr Hodgson also holds an advanced diploma in Financial Planning. Throughout the

Relevant Period, Mr Hodgson was approved to perform the Controlled Functions

of CF4 (Partner) and CF30 (Customer) at Vintage.

4.8.
Following the introduction of the Senior Managers and Certification Regime for all

firms authorised by the Authority, the Controlled Functions Mr Hodgson was

approved to perform were replaced by Senior Manager Functions. As a result,

from 9 December 2019 Mr Hodgson was approved to perform the SMF27 (Partner)

Senior Manager Function.

4.9.
Pensions are generally understood to be a traditional and tax-efficient way of

saving money for retirement. The value of an individual’s pension can have a

significant impact on their quality of life during retirement and will determine how

early they can afford to retire. Pensions are, in most cases, a primary resource

for ensuring financial stability in retirement. For some people, they are the only

way of funding retirement.

4.10.
Customers who engage authorised firms to provide them with advice in relation

to their pensions place significant trust in those providing the advice. Where an

advice business fails to conduct its affairs in a manner that is compliant with the

Authority’s regulatory Rules and requirements, this exposes its customers to a

significant risk of harm. This is particularly so in the case of Defined Benefit

Pension Transfer advice where it is critical that customers are provided with

suitable advice on transferring their valuable benefits out of the scheme, taking a

holistic and sufficiently detailed view of their individual circumstances.

4.11.
It is important that advisers and firms exercise reasonable care when advising

customers regarding their pensions, ensuring that suitable advice is provided,

having regard to all the relevant circumstances. This is even more important when

customers have no option but to make a decision regarding their pension (often

under time pressure), as was the case with Vintage’s British Steel Pension Scheme

customers.

4.12.
Transfer out of a Defined Benefit Pension Scheme involves giving up valuable

guaranteed benefits in exchange for a Cash Equivalent Transfer Value (CETV)

which is typically invested in a Defined Contribution pension. If a customer leaves

a Defined Benefit Pension Scheme, they may have to purchase an annuity to

obtain a particular level of income. Alternatively, they may rely on income from

investments. However, there is often no guarantee as to the amount or duration

of that income.

4.13.
The introduction of pension freedoms in April 2015 for Defined Contribution

pensions made transferring out of a Defined Benefit Pension Scheme an attractive

option for some people. However, Authority guidance provides that, given the

valuable nature of the guaranteed benefits provided under a Defined Benefit

Pension Scheme, a firm’s starting point should be the assumption that transferring

out and giving up those benefits is unlikely to be suitable for a customer. That is

the default position set out in COBS 19.1.6R, unless the firm can clearly

demonstrate, on contemporary evidence, that the Pension transfer, conversion or

Opt-out is in the customer’s best interests.

4.14.
During the Relevant Period 93 (or approximately 56%) of Vintage’s 165 Pension

Transfer customers were members of the British Steel Pension Scheme.

4.15.
The BSPS was one of the largest Defined Benefit Pension Schemes in the UK, with

approximately 125,000 members and £15 billion in assets as of 30 June 2017. In

March 2017, the BSPS was closed to future accruals, which meant that no new

members could join it and existing members could no longer build up their

benefits. The BSPS also had an ongoing funding deficit.

4.16.
In early 2016, various options were being explored in relation to the BSPS as a

result of insolvency concerns relating to one of its sponsoring employers. These

options included seeking legislative changes which would have allowed pension

increases available under the BSPS to be reduced to the statutory minimum levels,

and the sale of one of the sponsoring employers. However, it was concluded that

the only way to avoid insolvency would be to enter into a Regulated

Apportionment Arrangement (“RRA”).

4.17.
On 11 August 2017, The Pensions Regulator gave its clearance for the RAA. Under

the RAA, the BSPS would receive £550 million as well as a 33% equity stake in

one of the sponsoring employers and the BSPS would transfer into the PPF. In

addition, a new Defined Benefit Pension Scheme (“BSPS 2”) was proposed by the

sponsoring employers in combination with the RAA proposal. The RAA received

formal approval on 11 September 2017, which resulted in the BSPS being

separated from the sponsoring employer.

4.18.
The effect of the RAA was that members of the BSPS were required to make a

choice between two different options offered by the BSPS, namely to either:

(1) Remain in the BSPS and therefore move into the PPF; or

(2) Transfer their benefits into BSPS 2.

4.19.
Alternatively, BSPS members could elect to take a CETV and transfer their pension

benefits into an alternative pension arrangement such as a personal pension

scheme or another occupational pension scheme held by the member.

4.20.
On 11 and 21 September 2017, the BSPS announced that it would separate from

the sponsoring employer. Information about the options available to members

was available on the BSPS website from 11 August 2017 and in October 2017, the

BSPS distributed information packs to members about these options. Members

were required to choose their preferred option by 22 December 2017. Those who

wanted to transfer their pension benefits from the BSPS to a personal pension

were required to submit the required paperwork to execute the Pension Transfer

by 16 February 2018.

4.21.
The Rookes Review, an independent review of the support given to BSPS members

during restructuring and ‘Time to Choose’, states that BSPS members

experienced, and were influenced by, a set of unique circumstances. This included

the following:

(1) distrust of their employer;

(2) limited information on alternative options;

(3) tight timescales to make a decision; and

(4) limited support.

4.22.
Some BSPS members were in vulnerable circumstances. For example, BSPS

members tended to have no other assets and relied more on income from their

Defined Benefit Pension scheme than members of other schemes.

Vintage’s Pension Transfer Advice Business and Mr Hodgson’s Role

Increase in DBPS Work at Vintage in 2017

4.23.
Vintage experienced a sharp increase in its Defined Benefit Pension Transfer

advice business during the final quarter of 2017. This was largely due to an influx

of BSPS customers seeking Pension Transfer advice. During 2016 Vintage

provided only six customers with a Personal Recommendation. By contrast, in

Quarter 4 of 2017, Vintage advised 98 customers on transfer out of their Defined

Benefit Pension Scheme, 61 of whom were given Personal Recommendations in

November 2017 alone.

4.24.
Most customers proactively approached Vintage having been referred by a

personal contact, although a small number were referred by other Independent

Financial Advisers who did not have the requisite permissions to provide advice

on Defined Benefit Pension Transfers.

4.25.
In October 2017 Vintage decided to temporarily cease accepting new British Steel

Pension Scheme customers due to the high volume of customers at this time.

Vintage took this step in an attempt to reduce new enquiries and ensure that the

relationships with its existing clients were “not compromised”. The firm’s

resources were said to have become stretched in the final quarter of 2017.

4.26.
During the Relevant Period, Pension Transfer advice at Vintage was only provided

by Pension Transfer Specialists.

4.27.
Vintage operated a Pension Transfer advice process whereby customers seeking

Defined Benefit Pension Transfer advice had a short initial conversation with a

Pension Transfer Specialist, followed by two longer meetings. The first face-to-

face meeting with the customer was held to discuss details of Vintage’s services

and charging structure, the options available to the client, and next steps. An

initial fact find also took place at this stage. A TVAS report was prepared by a

paraplanner along with an initial Key Fact Illustration.

4.28.
Vintage’s policy documents state that a second meeting was subsequently held

between the customer and adviser, during which more detailed discussions took

place around risk, capacity for loss, investment objectives and the advantages

and disadvantages of a Pension Transfer. Following those meetings, a Suitability

Report was prepared by a paraplanner. The adviser would then check and amend

as necessary, before signing the document and presenting it to the customer.

Charges to Customers: Initial and Ongoing Transfer Fees

4.29.
Vintage imposed a minimum fee of £3,500 for customers with Transfer Values of

less than £100,000. Customers with Transfer Values of between £100,000 and

£500,000 would be charged a fee of 2% (subject to a minimum fee of £3,500 and

a maximum of £10,000). Customers with a Transfer Value of greater than

£500,000 would be charged a fee of 1.5% (subject to a minimum fee of £7,500

and a maximum fee of £15,000).

4.30.
In addition to charging advice fees, Vintage charged fees for arranging a Defined

Benefit Pension Transfer on a transaction only basis. This meant that the

investments would not be managed by Vintage on an ongoing basis. Vintage

would charge 3% on the first £100,000, 2% of the next £300,000 and 1% on the

remaining amount over £400,000, subject to a minimum fee of £3,500 and a

maximum fee of £15,000.

4.31.
Where customers retained Vintage to provide ongoing investment advice, a

further charge of 0.5% to 1% was payable annually, subject to a minimum fee of

between £500 and £3,000 depending on the value of the assets to be managed.

Whilst the ongoing advice charge was an optional service for customers, were it

not for the Authority’s intervention, the sharp rise in Vintage’s Pension Transfer

customers over this period would have translated into future additional income

from this service.

4.32.
Vintage operated a contingent charging policy during the Relevant Period. This

meant that Vintage would only be paid a fee if it advised the customer to transfer

funds out of their DBPS and the Pension Transfer then took place.

4.33.
Depending on the ongoing service option selected by the customer, in return for

the payment of an ongoing advice fee, Vintage agreed to provide a financial

planning review which included assessing the customer’s overall financial position

and providing them with a report which made recommendations and provide the

customer with updated forecasts.

Mr Hodgson’s Responsibilities as CF4 (Partner)

4.34.
In his capacity as CF4 (Partner) of Vintage, Mr Hodgson was jointly responsible,

with the other CF4 (Partner), for ensuring that the firm took reasonable care to

organise and control its affairs responsibly and effectively with adequate risk

management systems and controls to oversee and monitor the Pension Transfer

advice business being conducted by Vintage. He was also responsible for ensuring

that the firm took reasonable steps to ensure the suitability of its advice to its

customers.

Mr Hodgson’s Responsibilities as CF30 and Pension Transfer Specialist

4.35.
As a Pension Transfer Specialist, Mr Hodgson was required to provide Defined

Benefit Pension Transfer advice on behalf of Vintage which complied with the

Authority’s Rules and requirements. He was required to act with due skill, care

and diligence in carrying out this role. In particular, he needed to ensure that he

obtained all the necessary information from the customer to be able to make an

assessment on suitability, as well as to ensure that the advice that he provided to

the customer was suitable.

Background to the Authority’s Review of Vintage’s Defined Benefit

4.36.
The Authority monitored the Defined Benefit Pension Transfer advice market and

identified firms that had advised on a significant volume of British Steel Pension

Scheme transfers. Vintage was one such firm identified by the Authority. The

Authority visited Vintage’s offices on 12 December 2017, reviewed the processes

adopted by the firm in respect of this workstream and identified:

(1) Concerns, based on a review of a sample of files, that the Pension Transfer

advice provided by Vintage was unsuitable, including because there was little

evidence of assessment of customers’ knowledge and experience, and

customer information was not fully recorded;

(2) Concerns that there was an inconsistency and lack of rationale around the risk

profiling of customers and how transfer risk was considered; and

(3) Concerns that there was an unjustified disregard of high Critical Yields.

4.37.
On 12 December 2017 following intervention by the Authority, Vintage provided

the Authority with an immediate undertaking to cease all Defined Benefit Pension

Transfer advice. Vintage then applied for voluntary requirements to be imposed

on it, whereby it was required to cease all regulated activities relating to Defined

Benefit Pension Transfers.

4.38.
The voluntary requirements were accepted by the Authority and came into force

on 14 December 2017. As a result of engagement with the Authority and

improvements made by Vintage to its business model and processes, the

voluntary requirements were then removed from the firm’s permissions on 29

November 2018.

4.39.
On 15 May 2020, following the completion of the Authority’s file reviews, the

Authority asked for an undertaking from Vintage to cease its provision of Defined

Benefit Pension Transfer advice. The firm applied to have its permissions removed

on 26 May 2020, but confirmed that it had stopped providing Defined Pension

Transfer advice in February 2020 due to inadequate PII cover.

Review by the Authority of a Sample of Vintage’s Files

4.40.
In April 2020, the Authority conducted a review of a statistically representative

sample of 21 files against the applicable Rules found in the Authority’s Conduct of

Business Sourcebook (COBS) relating to Suitability. The 21 files related to 20

customers who were advised by the firm between November 2016 and December

2017. Upon invitation, Vintage then submitted further documents and information

in connection with these files.

4.41.
As a result of the further information provided by the firm, one file determination

changed from an assessment that the file contained material information gaps

(meaning that suitability could not be assessed) to an assessment that the

Defined Benefit Pension Transfer advice was unsuitable. Two files changed from

an assessment that the information gathering was non-compliant to an

assessment that it was compliant.

4.42.
Taking into account these amended determinations, the Authority’s review of the

files demonstrated that Vintage had:

(1) failed to collect the required information to give Pension Transfer advice in

seven cases. In three of these cases material information gaps meant that

the Authority was unable to assess whether the Firm’s advice was suitable,

and as such Vintage should not have issued advice to the customers (see

“Information collection” below);

(2) failed to provide Suitable Pension Transfer advice in 11 cases (giving suitable

advice in seven cases) (see “Unsuitable Pension Transfer advice” below); and

(3) provided poor quality communications to customers in 15 of the files reviewed

(see “Poor Communication” below).

4.43.
Seven of the 14 files which were assessed as containing either material

information gaps or unsuitable Pension Transfer advice were members of the

British Steel Pension Scheme. During the Relevant Period Vintage advised 93

BSPS customers to make Pension Transfers. The total value of funds in their

Defined Benefit Pension Schemes was £34,950,530 (with an average value of

£375,812.15).

4.44.
The total Transfer Value of the Defined Benefit Pension Schemes in which the firm

gave advice during the Relevant Period was £70,250,492, with an average value

of £420,662.63. The average Transfer Value for the customers within the 14 files

who did not receive suitable Pension Transfer advice was £353,918.79. The

majority of customers within the 21 sample files had transfer values similar to

this figure, albeit transfer values in the sample ranged from £130,280.47 to

£931,490.

4.45.
BSPS members who did not receive suitable Pension Transfer advice were

generally less financially resilient than those customers who were members of

other Defined Benefit Pension Schemes. These customers had limited financial

resources available to protect them from any downturn in their finances, with

limited alternative pension provision. Some BSPS customers had benefited from

the replacement Defined Contribution scheme which commenced shortly before

the advice was provided, and some customers, or their partners, had separate

modest pensions.

4.46.
Although, as for BSPS customers, the Transfer Value afforded by their Defined

Benefit Pension was the most significant asset amongst non-BSPS customers,

non-BSPS customers in the sample were more likely to have significant

investments and cash reserves.

4.47.
During the Relevant Period, the overarching suitability requirement in COBS

9.2.1R was for a firm to take reasonable steps to ensure that a personal

recommendation, (which in this context includes a recommendation to transfer or

not to transfer a pension), is suitable for its customer. To do so, a firm must obtain

the necessary information regarding the customer’s (a) knowledge and experience

in the investment field relevant to the pension transfer; (b) the customer’s

financial situation; and (c) the customer’s investment objectives (COBS

9.2.1R(2)(a)-(c)).

4.48.
Making a Personal Recommendation without the necessary information increases

the risk of providing unsuitable advice and is in breach of the Authority’s Rules. If

a firm does not obtain the necessary information to assess suitability such that

there are material information gaps, it must not proceed to make a Personal

Recommendation (COBS 9.2.6R).

Failure to Gather Information on the Customer’s Financial Situation

4.49.
Information about a customer’s wider financial situation, including their additional

resource and current expenditure details, is key to assessing the extent of their

reliance on the income provided by their Defined Benefit Pension Scheme, and

their capacity for loss (COBS 9.2.2R).

4.50.
In three of the 21 files reviewed by the Authority there was insufficient information

captured to enable the adviser to make a Personal Recommendation. This

therefore put the customer at risk of receiving unsuitable Pension Transfer advice.

In one case, household finances were managed jointly between the customer and

their partner, and the failure to obtain full details of the partner’s expenditure, or

pension entitlement, prevented the adviser from building an accurate picture of

reliance on the DBPS and capacity for loss. It was therefore not possible to

determine the extent of the customer’s reliance on the income likely to be afforded

by their DBPS during retirement.

4.51.
The Authority’s review also revealed information gaps on customer files where a

suitability assessment could be made, but where the information gathering still

failed to comply with the requirements of the Authority’s Rules. For example, in

one file reviewed by the Authority, information around the customer’s mortgage

was missing. Where information had been provided on another file in respect of

the customer’s anticipated income needs during retirement, there was no

evidence that apparent unexplained gaps or discrepancies were investigated

further by the adviser. The Authority also found that in these two files there was

a failure to capture customer state pension forecasts.

Failure to Gather Income and Expenditure in Retirement details

4.52.
In six of the cases reviewed by the Authority, there was no accurate, evidenced,

clear breakdown of income and expenditure with the effect that realistic

retirement income needs could not be determined. This also had an impact upon

the assessment of whether the customer had the appropriate capacity for loss.

For example, in the case of Customer A, it was unclear whether the expenditure

figures took into account their partner’s income needs. Further, there was a lack

of consideration as to how an intended foreign property purchase would affect

their income needs during retirement.

4.53.
The overarching suitability requirement under COBS 9.2.1R(1) is for a firm to take

reasonable steps to ensure that a personal recommendation (which includes, in

this context, a recommendation to transfer or not to transfer a pension) is suitable

for its customer.

4.54.
The Authority’s file reviews of 21 customer files found that 11 of the customers

received unsuitable Pension Transfer advice. Of these, five were former BSPS

members. All 11 files failed for multiple reasons.

Customers Reliant on the Defined Benefit Scheme and Unable to Bear Transfer

4.55.
In eight of the 11 customer files which the Authority assessed to contain

unsuitable Pension Transfer advice, the customer was considered by the Authority

to be reliant on income from the Ceding Arrangement. These customers did not

have significant assets which could be used to supplement any shortfalls in their

income during retirement.

4.56.
A customer is considered by the Authority to be reliant on income from their

Ceding Arrangement during retirement if it would be their primary source of

income with no capacity to bear the risk of losing it. For example, a customer

would be reliant on their Ceding Arrangement during retirement if they would be

unable to meet non-discretionary expenditure without the guaranteed income

from their DBPS.

4.57.
Vintage’s Pension Transfer recommendations to these customers exposed them

to the risk of not being able to meet their income needs throughout retirement

because they would forgo the secure, guaranteed income that they would have

received from their DBPS. The Authority considers that advisers did not have a

reasonable basis for believing that these customers could financially bear the

investment risks related to the Pension Transfers it recommended to them.

4.58.
In seven of the 21 files reviewed by the Authority, Vintage recommended transfer

away from the customer’s Ceding Arrangement when there was insufficient

evidence to suggest that the customer could bear the transfer risk required to

achieve their investment objectives.

4.59.
Customer J, for example, was 39 and married at the time he received Pension

Transfer advice from Vintage. The CETV of the customer’s fund was £240,864.70.

The customer was a member of the BSPS 2 scheme, and their spouse was a

member of the NHS pension scheme. Although Customer J was a member of a

separate British Steel Defined Contribution pension scheme, the fund under

consideration was their only Defined Benefit Pension. The customer’s objective

was to retire early at age 58. The customer had little financial knowledge, scoring

low/medium on the Risk Profile Questionnaire. Despite the file containing

incomplete information regarding Customer J’s financial situation, the Authority

determined that they could not withstand the risk associated with the Pension

Transfer for the following reasons:

(1) The customer required £1,850 net per month to meet their required level of

expenditure. This equated to £22,200 net per annum, which was in excess of

the client’s likely state pension entitlement at state pension age;

(2) Whilst the customer had a separate British Steel Defined Contribution pension,

this was unlikely to grow to a substantial value. The British Steel Defined

Benefit scheme was therefore the client’s primary source of income during

retirement;

(3) Vintage did not demonstrate a reasonable basis for believing that the customer

was financially able to bear any risks associated with transferring out of their

Defined Benefit Pension Scheme. This required the adviser to carry out an

objective assessment. Further, the Authority assessed that the objective of

improving death benefits appeared to come at the expense of giving up

guaranteed income and the customer’s objective of early retirement; and

(4) The customer’s objective of retiring at age 58 had not been assessed for

affordability, and Vintage did not explore alternative means of achieving this

objective. Although early retirement was still a potential option within both the

Pension Protection Fund and BSPS 2, these options were not properly

investigated or discounted. It therefore could not be demonstrated that

transfer out of the customer’s DBPS was in their best interests.

Lack of Evidence to Support Customer Objectives

4.60.
In all 11 cases assessed by the Authority as being unsuitable for transfer, Vintage

failed to provide sufficient evidence to demonstrate that specific objectives

underpinning the Pension Transfers were in the customer’s best interests. These

objectives included, for example: access to improved death benefits, withdrawal

flexibility, accessing tax-free cash, early retirement and to address the customer’s

concerns about the viability of BSPS 2.

4.61.
The primary purpose of a pension is to meet the income needs of an individual in

retirement. By treating maximisation of a customer’s death benefits, or seeking

flexibility via alternative pension arrangements, as a high priority, there is an

increased risk that this is at the expense of the primary income purpose. There

may therefore be a trade-off that must be resolved in the best interests of the

customer
given
their
individual
circumstances
(COBS
9.2.1R(1)
and

9.2.2R(1)(b)).

4.62.
There were several examples where the customer expressed a wish to maximise

their death benefits, a need for increased flexibility, or a desire to retire early,

with the result that they were advised to complete a Pension Transfer. However,

the information contained in those files and the recommendation itself did not

adequately demonstrate that those objectives had been adequately tested and

explored for viability, or that alternatives to transfer had been explored with the

customer. Vintage therefore failed to demonstrate that the Pension Transfer was

in the customer’s best interests (COBS 9.2.1R(1) or COBS 9.2.2R(1)).

4.63.
Instead, the objectives set out in the Suitability Reports were often generic.

During the course of its review the Authority found examples of Suitability Reports

listing vague objectives such as ‘flexibility’ and ‘death benefits’ without explaining

the rationale behind the objective. Accordingly, alternatives to meeting these

stated objectives were not explored. In some cases, alternatives to a Pension

Transfer that would not have put the customer’s retirement provision at risk were

not fully considered.

4.64.
In the case of customer C, for example, the customer’s aim was to raise £40,000

to fund a property purchase. However, they would be reliant on the income from

their DBPS during retirement. The Pension Transfer Specialist did not consider

alternative means of meeting the customer’s objectives, such as the sale of assets

or shares, taking a Pension Commencement Lump Sum in the Defined Benefit

Pension Scheme, or taking out a loan.

Lack of Necessary Attitude to Risk and Knowledge and Experience

4.65.
Vintage was obliged to obtain information on the customer’s preferences

regarding risk taking and their risk profile (COBS 9.2.2R), to ensure that the

customer was prepared to exchange the guaranteed benefits of the Defined

Benefit Pension Scheme for non-guaranteed benefits which are subject to

customer-borne investment risk. Vintage was also required to obtain sufficient

information to provide a reasonable basis for believing that the customer had the

necessary knowledge and experience to understand the risks involved in the

Pension Transfer (COBS 9.2.3R).

4.66.
In four of the cases reviewed by the Authority there was a failure to demonstrate

that the customer had sufficient knowledge and experience to understand the

risks of the Pension Transfer. For example, in one case there was no specific

assessment of attitude to risk, and the customer had a cautious attitude towards

investment risk. There was no evidence to demonstrate that the Pension Transfer

Specialist had scrutinised this further. Instead, they relied upon the client’s

acceptance of their advice after receiving written warnings within the Suitability

Report.

4.67.
In seven cases reviewed by the Authority, the customer did not have the

necessary attitude to risk to justify a Pension Transfer. For example, Customer

B’s risk assessment highlighted the insufficiency of the firm’s risk profiling tool:

the questions were not sufficiently detailed and the file did not properly consider

the customer’s attitude to risk. In Customer I’s case, the risk assessment

questionnaire
focussed
too heavily
on
the
customer’s current
financial

circumstances, rather than considering their anticipated circumstances during

retirement when the customer would not have surplus income.

Transfer Analysis Not Supportive of the Pension Transfer

4.68.
In order to provide Pension Transfer advice, Vintage was obliged to carry out a

comparison between the benefits likely to be paid by the Ceding Arrangement

with the benefits afforded by the Proposed Arrangement (COBS 19.1.2R(1)). The

TVAS document was the means of facilitating this comparison and the main output

was a series of percentages, known as “Critical Yields.” These illustrate the annual

growth rate (net of charges) that the customer would need to obtain on an

investment of the CETV in order to replicate the benefits provided by the Ceding

Arrangement. The firm needed to ensure that the comparison included sufficient

information regarding a Pension Transfer for the customer to be able to make an

informed decision, drawing the customer’s attention to factors that both

supported and undermined the firm’s advice.

4.69.
The Authority’s file review revealed that the firm failed to carry out accurate

Transfer Value analysis in eight cases. Vintage frequently calculated high (and

therefore likely unrealistic) Critical Yields, often exceeding what was likely to be

achieved taking into account the customer’s attitude to risk. The TVAS reports

often failed to consider transfer risk as a distinct concept.

4.70.
In several cases, the objective of improving death benefits payable for the

customer’s spouse was a key driver for the Pension Transfer. However, the TVAS

report illustrated that the value of death benefits was greater under the Defined

Benefit Pension Scheme in the short term but did not consider alternative means

of achieving this aim in the long term.

4.71.
In the case of Customer F, for example, the TVAS illustrated that on day one the

capitalised value of their Defined Benefit Pension death benefits was £501,072.50

compared to the CETV of £324,754.75. There was no evidence to suggest that

the firm drew this to the client’s attention, or to show that the spouse favoured a

lump sum death benefit over a guaranteed pension.

4.72.
In another case, the TVAS report illustrated that a PPF pension was more generous

for early retirement and would have been sufficient to meet the customer’s basic

retirement needs without exposing the fund to the uncertainty of market

conditions. However, the customer was advised to effect a Pension Transfer,

notwithstanding the contents of the report.

Customer Objectives Could be Met by the Defined Benefit Pension Scheme

4.73.
When a transfer away from a Defined Benefit Pension scheme is not necessary to

achieve customer objectives, or results in the loss of guaranteed benefits which

are important to the customer, the risk that the Pension Transfer is not in the

customer’s best interests crystallises. This was the case in eight customer files

reviewed by the Authority.

4.74.
Customer K, for example, indicated that they wished to retire early at age 60.

Their Defined Benefit Pension was set to pay £28,502 per annum at age 60 and

this could have been supplemented by withdrawals from their Defined

Contribution pension, or their spouse’s Defined Benefit or Defined Contribution

schemes, to meet their income need of £30,000 per annum before their state

pension commenced. The customer could therefore have achieved their early

retirement objective by remaining in their Defined Benefit Pension Scheme.

However, they were advised by Vintage to transfer out of their DBPS.

4.75.
Vintage also recommended Pension Transfers to seven members of the British

Steel Pension Scheme, in part because the customer’s objective was early

retirement, despite the fact that this objective could have been met by remaining

in BSPS 2 or the PPF.

Examples of Files with Multiple Failings

4.76.
In all the cases where the Authority assessed the Pension Transfer advice to be

unsuitable, the Pension Transfer Specialist failed to follow the guidance in more

than one way.

4.77.
Customer I, for example, was 56, a BSPS member, and married. Their salary was

£32,000 per annum and their spouse was earning £45,000 per annum. Customer

I’s anticipated income from their British Steel Pension was calculated to be

£27,835 per annum at age 65 and £19,974 at age 60. Their combined expenditure

was recorded as £2,000 per month. In retirement, they were aiming for an income

of £2,000 net per month. Customer I was planning to retire at age 60, and their

spouse at age 55. Their other assets were £9,500 cash, a £15,000 Defined

Contribution pension and a further private pension provision. The couple had no

financial knowledge and experience and limited capacity for loss.

30

4.78.
Vintage recommended that the customer transfer out of their BSPS despite the

customer’s strong reliance on the guaranteed income it was likely to provide, and

the fact that the customer did not have the capacity to forgo that guaranteed

income. Customer I required £2,000 net per month to meet their anticipated level

of expenditure, which was in excess of the customer’s likely state entitlement at

state pension age. The combined value of the customer’s and their spouse’s

pensions, including their DBPS, would have met the customer’s retirement income

objectives. Further, the customer’s objectives of flexibility and access to death

benefits were not sufficiently scrutinised and there was no explanation of how the

tension was resolved in the customer’s best interests.

4.79.
The customer’s objective of early retirement at age 60 was not sufficiently

scrutinised. The Pension Transfer Specialist did not investigate whether the

customer was able to retire early or explore alternative ways to achieve this

objective while remaining in the Ceding Arrangement. In addition, the TVAS did

not support the recommendation to transfer out of the customer’s DBPS. Given

the customer’s risk profile, the Critical Yields of 20.17% to match BSPS scheme

benefits by age 60, and 8.21% to match PPF benefits at age 60, were

unattainable.

4.80.
The risks were further compounded by Customer I’s low level of financial

knowledge and experience, having stated in his fact find that he had “No previous

experience whatsoever”. This, coupled with the customer’s reliance on their

Defined Benefit Pension Scheme for retirement income, suggests that the

customer did not have the appropriate attitude to risk or the ability to bear the

transfer risk.

Poor Quality Communications with Customers

4.81.
The Authority’s Rules about the provision of information to customers are

designed to ensure that consumers are given all the necessary information to

enable them to make an informed decision and are, ultimately, treated fairly.

4.82.
In all 21 files reviewed by the Authority, the TVAS Report stated that “it is very

important to understand that DB benefits are not guaranteed. The scheme only

promises to pay the benefits, subject to there being sufficient assets in the fund.”

Without sufficient explanation and appropriate context, this was potentially

misleading, confusing and detrimental to customers, particularly for those who

had stated a strong preference for certain returns or objectives.

4.83.
Further, this gave a contrary message to the starting point in the Authority’s

Guidance that transferring out and giving up those benefits is unlikely to be

suitable for a customer, unless the adviser can clearly demonstrate, on

contemporary evidence, that the Pension Transfer, conversion or Opt-out is in the

customer’s best interests.

4.84.
The advisers at Vintage did not comply with the Authority’s Rules regarding

provision of information to customers in 15 of the 21 files reviewed by the

Authority.

4.85.
Suitability Reports were not compliant with the Authority’s Rules in 13 of the cases

reviewed by the Authority. In six cases, the Suitability Report did not explain why

a Pension Transfer met the best interests of the customer over the alternatives,

nor did they give a balanced view of alternative options. In two cases reviewed

by the Authority, the customers’ objectives and priorities were insufficiently

tailored to their circumstances.

4.86.
In eight cases, the disadvantages of the Pension Transfer (such as the risk of the

fund prematurely depleting if assumptions changed, and the need for ongoing

management) were not brought to the customer’s attention in the Suitability

Report. The effect of this failing was then exacerbated where the report did not

engage in a meaningful assessment of the alternatives to Pension Transfer.

4.87.
COBS 4.2.1R required Suitability Reports and other communications, to be written

in a way that is clear, fair and not misleading. Three customer files failed in this

regard. For example, in the case of Customer B, the investment report

misleadingly suggested returns of between 4% to 6% net per annum for the

proposed investment, whereas the illustration on file showed this to be unrealistic,

with mid-forecast returns negative after charges.

4.88.
The Authority’s file review revealed that there were Transfer Analysis report

failings in seven cases reviewed. The firm did not fully present the investment

risks to the customer, nor did it present the features of the Ceding Arrangement

that were relevant to the customer’s objectives. Unrealistic returns and Critical

Yields which did not match with the customer’s attitude to risk were included in

reports, with no explanation of how these issues had been considered by the

adviser. Some Suitability Reports did not reflect, or explore, the option of the

customer taking a Pension Commencement Lump Sum, resulting in misleading

comparisons being provided to customers.

Mr Hodgson’s Performance of His Controlled Functions

Poor Monitoring and Oversight as a CF4 (Partner)

4.89.
During the Relevant Period, Vintage advised 97% of its Defined Benefit Pension

clients to transfer out of their DBPS, and 98.8% of those customers followed the

firm’s advice. Mr Hodgson failed to identify the risk of unsuitability indicated by a

very high transfer rate, despite regular meetings between the partners to discuss

business matters. He therefore failed to competently analyse management

information, in his capacity as a CF4 (Partner), so as to be able to take reasonable

steps to further investigate and effectively remediate failings in the Pension

Transfer advice process.

4.90.
Given that Defined Benefit Pension Transfer advice was identified as a high-risk

business area, and in the context of the Authority’s guidance which created as a

starting point the presumption that a Pension Transfer was unsuitable, the failure

to undertake high-level monitoring of advice trends was an unreasonable omission

in respect of Mr Hodgson’s oversight of the firm’s Pension Transfer advice

business.

4.91.
Attempts were made to improve the quality of monitoring and oversight at Vintage

following an external file assessment in August 2017. In September 2017, a senior

paraplanner joined Vintage and introduced two checklists that were designed to

improve and record the file review checks being undertaken by Mr Hodgson’s

partner. The first checklist recorded whether the required information was present

on file, and the second was a spreadsheet recording information about the client

meeting, relevant dates and the risk profile of the client.

4.92.
Vintage also started using a new expenditure questionnaire aimed at obtaining

full details of the client’s requirements. Prior to the introduction of these

checklists, the process of file checking was much more informal with no record of

checks conducted on files.

4.93.
The firm also introduced a Pension Transfer ‘workflow system’ following the

August 2017 file review, which was designed to ensure that all steps in the Pension

Transfer advice process were followed.

4.94.
Despite the introduction of the two checklists, the Authority’s file review

established that the checklists were not used consistently after they were

introduced. Seven of the files assessed by the Authority as unsuitable and three

of the files with material information gaps related to advice provided during the

period following 1 September 2017, indicating that the changes to the process did

not materially improve the suitability of advice or remedy failings in this regard.

4.95.
The August 2017 external review also identified flaws in Vintage’s risk profiling

system, including the following:

(1) The “attitude to risk” descriptors were unclear;

(2) There was a failure to resolve the tension between Attitude to Risk answers

and the recommendation to transfer; and

(3) The capacity for loss scoring/mapping was unclear.

4.96.
As a result of these findings, and under the oversight and direction of Mr Hodgson

and his partner, Vintage started to research alternative risk profiling solutions

with a view to adopting a new system. This exercise took five months to complete

while Vintage was trialling alternative systems. The same points were also

highlighted in two external file reviews in November 2017, demonstrating that the

deficiencies had not been remedied by the time of the second external review.

4.97.
The new risk profiling system was finally implemented in January 2018 (after the

end of the Relevant Period). This was unduly delayed given the increase in Defined

Benefit Pension Transfer customers during 2017 and the fact that Mr Hodgson did

not take expeditious corrective action to mitigate the risks arising from the

existing risk profiling system which had been identified as flawed.

4.98.
Despite the fact that there was no written Defined Benefit advice process in place

during the Relevant Period, Vintage produced a Monitoring and Oversight process

document in July 2018, after it had stopped advising on Defined Benefit Pension

Transfers. This document set out the procedures it said were in place for checking

Pension Transfer advice and clarified the oversight measures used during the

Relevant Period. The document noted that Vintage considered Defined Benefit

transfer advice to be a ‘high-risk business’ area. Mr Hodgson also personally

recognised the high-risk nature of Defined Benefit Pension Transfers.

4.99.
According to this procedure, Vintage had a system in place whereby all

recommendations in favour of a Pension Transfer were checked by a further

Pension Transfer Specialist. The process document states that once the

recommendation report was prepared, the full file was passed to the checking

Pension Transfer Specialist. Feedback was then provided to the Pension Transfer

Specialist face-to-face, and any amendments required were made prior to the

report being sent to the customer. However, the process document was produced

retrospectively and the Authority has seen no evidence that the checks described

in the process document were undertaken in practice.

4.100. Mr Hodgson’s partner, who had the responsibility for Defined Benefit Pension file

compliance checking at Vintage in his capacity as CF10, only compliance checked

the advice provided by the non-partnered Pension Transfer Specialists. There was

no compliance checking of Mr Hodgson’s files and no compliance checking of his

partner’s files either. As a partner of the firm, Mr Hodgson was responsible for

ensuring that there was adequate monitoring and oversight of the Pension

Transfer process as well as ensuring there were sufficient compliance resources

in place. He would have been aware that his own work, and that of his partner,

was not being compliance checked.

4.101. There was therefore no system in place to ensure that the partners’ Pension

Transfer advice was compliance checked. When external file reviews were

introduced in August 2017, these were not carried out in sufficient number and

Mr Hodgson and his partner did not deploy adequate compliance resources to

remedy this. Accordingly, as Mr Hodgson advised in 89 of 167 (52.3%) of the

Personal Recommendations produced by the firm, all 89 cases were not

compliance checked internally by the CF10, and only two of these cases were

subject to external review. There was therefore no compliance check of any sort

in 87 of 167 recommendations which was inadequate given the high-risk nature

of this workstream and the risks to customers were they to receive unsuitable

advice.

Failure to Provide Suitable Pension Transfer Advice as a CF30 and Pension

4.102. Of the 21 files reviewed by the Authority, 11 files contained advice provided by

Mr Hodgson, which had not been subjected to any compliance checking procedure

whatsoever. Of these 11 files, five were assessed as containing unsuitable Pension

Transfer advice, and two (both relating to the same customer) were incapable of

being reviewed due to material information gaps. This indicates the risks inherent

in the compliance checking system in place at Vintage during the Relevant Period,

but also demonstrates Mr Hodgson’s failure to provide advice on behalf of the firm

which met with the requirements of regulatory system.

4.103. Despite the increase in Defined Benefit Pension Transfer advice after July 2017,

Mr Hodgson and his partner failed to take reasonable steps to ensure that

adequate additional compliance resource was available to mitigate the risks

arising out of what had been identified by the firm itself as being high-risk

business. The partners chose not to engage any external reviews of the firm’s

Defined Benefit Pension Transfer advice prior to August 2017. Between August

2017 and November 2017, three DBPS transfer advice files were then reviewed

externally. It was not reasonable to maintain this insufficient level of support for

the following reasons:

(1) Vintage regarded Defined Benefit Pension Transfer advice as being “high risk”;

(2) Mr Hodgson knew that his Pension Transfer advice files and the Pension

Transfer advice of his partner were not being compliance checked;

(3) The compliance checks that did take place were undertaken by Mr Hodgson’s

partner in his capacity as CF10, who failed to carry out those checks

competently and whose own Pension Transfer advice was not being

compliance checked;

(4) By not engaging in any external Defined Benefit Pension Transfer file reviews

before August 2017, there was no way to challenge or determine how the

compliance process was functioning;

36

(5) The first externally reviewed file in August 2017 was not assessed as

containing suitable advice. Mr Hodgson, whose files were not compliance

checked, was the Pension Transfer Specialist. This should have given rise to

concerns with regard to his approach to Defined Benefit Pension Transfer

advice; and

(6) The second and third reviews in November 2017 revealed consistent advice

errors, despite the changes made to the oversight process from September

2017. This should have given rise to concerns of systemic failure such that

further assessment of files was required.

4.104. The significant increase in Defined Benefit Pension Transfer advice business, given

factors (1)-(6) above, should have prompted a proportionate allocation of external

resource to Defined Benefit Pension Transfer file reviews. However, the partners

failed to apply adequate resources to this business area.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

5.2.
Based on the facts and matters above, the Authority finds that, by reason of the

matters described in section 4 of this notice, Mr Hodgson breached:

(1) Statement of Principle 2, in that he failed to exercise due skill, care and

diligence in carrying out his Accountable Function of CF30 (Customer adviser);

and

(2) Statement of Principle 7, in that he failed to take reasonable steps to ensure,

in respect of his performance of the CF4 (Partner) function, that Vintage

complied with Principles 3, 7, and 9 of the Authority’s Principles for Businesses,

and COBS 2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R as a result of the

deficiencies in Vintage’s Pension Transfer recommendations.

Breach of Statement of Principle 2

5.3.
Mr Hodgson breached Statement of Principle 2, in that he failed to exercise due

skill, care and diligence in providing Defined Benefit Pension Transfer advice on

behalf of Vintage. Customers followed Mr Hodgson’s recommendation to transfer

out of their Defined Benefit Pension Scheme when this advice was not suitable for

them, putting their retirement income at significant risk. In particular, this

resulted in advice where:

(1) Insufficient information was obtained about the customer to enable Mr

Hodgson to assess suitability;

(2) He did not properly assess whether:

(a) the customer was reliant on the income from their Defined Benefit Pension

Scheme and whether they could financially bear the risks involved in a Pension

Transfer;

(b) the aims which drove the recommended Pension Transfer were in the best

interests of the customer;

(c) alternatives to a Pension Transfer could meet the customer’s needs;

(d) the customer had the appropriate knowledge, experience and attitude to risk;

(e) the transfer analysis supported a recommendation to transfer out of the

Ceding Arrangement; and

(f) the documentation issued to customers to put them in a sufficiently informed

position and was not clear, fair and not misleading.

Breach of Statement of Principle 7

5.4
Mr Hodgson breached Statement of Principle 7, in that he failed to take reasonable

steps to ensure, in respect of his performance of the CF4 (Partner) function, that

Vintage complied with Principles 3, 7 and 9 of the Authority’s Principles for

Businesses, and COBS 2.1.1R, 9.2.1R, 9.2.2R, 9.2.6R and 19.1.2R, as a result of

the deficiencies in Vintage’s Pension Transfer recommendations in that he:

(1) failed to undertake any analysis of management information regarding the

Personal
Recommendations
produced
by
Vintage’s
Pension
Transfer

38

Specialists, despite the high volumes of customers who were recommended

to effect a Pension Transfer;

(2) failed to challenge the reasons for why almost all customers were

recommended to transfer out of their Defined Benefit Pension Schemes,

despite the starting point of the presumption of unsuitability in the Authority’s

guidance;

(3) failed to arrange for an increased level of external compliance support in the

context of the deficiencies in the internal compliance checking process and the

increased volume of Defined Benefit Pension Transfer advice work after July

2017; and

(4) failed to allocate appropriate resources, as part of his oversight role, to ensure

that sufficient routine compliance checking of the work of all four of the

Pension Transfer Specialists took place. In particular, none of his Pension

Transfer advice was compliance checked by the firm’s CF10 during the

Relevant Period.

5.5
The Authority therefore considers that Mr Hodgson is not fit and proper to perform

any function in relation to the regulated activity of advising on Pension Transfers

and Pension Opt-outs carried on by an authorised person, exempt person or exempt

professional firm. The Authority also considers that Mr Hodgson is not fit and proper

to perform any Senior Management Function in relation to any regulated activities

carried on by an authorised person, exempt person or exempt professional firm.

6.
SANCTION

6.1.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5B sets out the details of the five-step framework that applies in

respect of financial penalties imposed on individuals in non-market abuse cases.

6.2.
Pursuant to DEPP 6.5B1G, at Step 1 the Authority seeks to deprive an individual

of the financial benefit derived directly from the breach where it is practicable to

quantify this.

6.3.
During the Relevant Period, Mr Hodgson derived direct financial benefit from the

breaches in the sum of £245,691.57.

6.4.
The interest chargeable on these benefits at 8% per annum from receipt to the

date of this Notice would have amounted to £107,915.81.

6.5.
Step 1 therefore would have been £353,607 (rounded down to the nearest £1)

inclusive of interest.

Step 2: The Seriousness of the Breach

6.6.
Pursuant to DEPP 6.5B2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. The figure is based on a percentage of the

individual’s relevant income. The individual’s relevant income is the gross amount

of all benefits received by the individual from the employment in connection with

which the breach occurred, and for the period of the breach.

6.7.
The relevant income for Mr Hodgson is £233,648.70.

6.8.
In deciding on the percentage of the relevant income that forms the basis of the

step 2 figure, the Authority considers the seriousness of the breach and chooses

a percentage between 0% and 40%. This range is divided into five fixed levels

which represent, on a sliding scale, the seriousness of the breach; the more

serious the breach, the higher the level. For penalties imposed on individuals in

non-market abuse cases there are the following five levels:

Level 1 – 0%

Level 2 – 10%

Level 3 – 20%

Level 4 – 30%

Level 5 – 40%

6.9.
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly.

Impact of the Breach

6.10.
Mr Hodgson caused a significant risk of loss, as a whole, as well as actual loss, to

consumers who transferred out of their Defined Benefit Pension Schemes as a

result of the firm’s unsuitable Pension Transfer advice (DEPP 6.5B.2G(8)(b)).

Further, a large proportion of customers agreed to pay for an ongoing service

provided by Vintage. Where an unsuitable Pension Transfer recommendation was

made and executed on behalf of the customer in these cases, the customer

continued to pay for a service which, were it not for the unsuitable Pension

Transfer advice, would not have been payable. Mr Hodgson was responsible for

transfers with CETVs totalling over £28 million.

6.11.
Mr Hodgson’s breach caused a significant risk of loss to individual consumers who

transferred out of their Defined Benefit Pension Scheme as a result of advice

provided by Vintage. For many customers, their Defined Benefit Pension Scheme

was their most valuable asset (the average CETV was £420,662.63 in general,

and £393,052 for Mr Hodgson’s advice) and was their main retirement provision

(DEPP 6.5B.2G(8)(c)).

6.12.
Over half of those customers advised by Vintage were BSPS members, many of

whom were in a vulnerable position due to the uncertainty surrounding the future

of the BSPS (DEPP 6.5B.2G(8)(d)).

Nature of the Breach

6.13.
The breach was continuous during the Relevant Period (DEPP 6.5B.2G(9)(b)).

6.14.
Mr Hodgson is an experienced industry professional having worked in financial

services for several years. He held a senior position (CF4) within the firm (DEPP

6.5B.2G(9)(j) and (k)) and held significant responsibility for the business area

affected by the breach (l).

6.15.
Mr Hodgson did take some steps, along with his partner, in an attempt to comply

with the Authority’s rules (DEPP 6.5B.2G(9)(n)) that are described in section 4

above.

Whether the Breach was Deliberate and/or Reckless

6.16.
The breaches committed by Mr Hodgson were as a result of his lack of

competence, rather than deliberate or reckless acts (DEPP 6.5B.2G(11)).

Level of Seriousness

6.17.
DEPP 6.5B.2G(12) lists factors likely to be considered ‘level 4 or 5 factors’. The

Authority considers that the fact that Mr Hodgson’s breach caused a significant

risk of loss to customers is particularly relevant (DEPP 6.5B.2G(12)(a)).

6.18.
DEPP 6.5B.2G(13) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The

Authority considers that Mr Hodgson’s breach of Principles 6 and 7 were

committed negligently (DEPP 6.5B.2G(13)(d)).

6.19.
Taking all of these factors into account, the Authority considers the seriousness

of the breach to be level 3 and so the Step 2 figure is 20% of £233,648.70.

6.20.
Step 2 is therefore £46,729.74.

Step 3: Mitigating and Aggravating Factors

6.21.
Pursuant to DEPP 6.5B.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2, but not including any

amount to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.22.
The Authority considers there to be no aggravating factors.

6.23.
The Authority considers that there are no factors that mitigate the breach.

6.24.
Step 3 is therefore £46,729.74.

Step 4: Adjustment for Deterrence

6.25.
Pursuant to DEPP 6.5B.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the firm who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty.

6.26.
The Authority considers that the Step 3 figure represents a sufficient deterrent to

Mr Hodgson and others, and so has not increased the penalty at Step 4.

6.27.
Step 4 is therefore £46,729.74.

6.28.
Pursuant to DEPP 6.5B.5G, if the Authority and the individual on whom a penalty

is to be imposed agree the amount of the financial penalty and other terms, DEPP

6.7 provides that the amount of the financial penalty which might otherwise have

been payable will be reduced to reflect the stage at which the Authority and the

firm reached agreement. The settlement discount does not apply to the

disgorgement of any benefit calculated at Step 1.

6.29.
The Authority and Mr Hodgson reached agreement at Stage 1 and so a 30%

discount applies to the Step 4 figure.

6.30.
Step 5 is therefore £32,700 (rounded down to the nearest £100).

6.31.
The Authority hereby imposes a total financial penalty of £32,700 on Mr Hodgson

for breaching Statement of Principle 6 and Statement of Principle 7. This

represents the punitive element of the penalty and is to be paid direct to the FSCS

for the purpose of consumer redress. In furtherance of the consumer protection

objective, in order to maximise funds available for consumer redress, the

Authority will forgo any sum, otherwise owing by way of disgorgement, which has

been made available to the FSCS by the partners of Vintage. The Authority would

have imposed a penalty of £386,307.

Withdrawal of Approval and Prohibition Order

6.32.
The Authority has had regard to the guidance in Chapter 9 of EG in considering

whether to withdraw Mr Hodgson’s approval to perform Senior Management

Functions and whether to impose a prohibition order on him. The Authority has

the power to prohibit individuals under section 56 of the Act.

6.33.
The Authority hereby withdraws Mr Hodgson’s SMF4 (Partner) Function at Vintage.

6.34.
The Authority hereby prohibits Mr Hodgson from performing the following

functions because he is not a fit and proper person to perform such functions due

to his lack of competence and capability:

(1) any function in relation to the regulated activity of advising on Pension

Transfers and Pension Opt-outs carried on by an authorised person, exempt

person or exempt professional firm; and

(2) any Senior Management Function in relation to any regulated activities carried

on by an authorised person, exempt person or exempt professional firm.

7.
PROCEDURAL MATTERS

7.1.
This Notice is given to Mr Hodgson under and in accordance with the section 390

of the Act and to Vintage as an interested party in the withdrawal of Mr Hodgson’s

approval.

7.2.
The following statutory rights are important.

Decision Maker

7.3.
The decision which gave rise to the obligation to give this Notice was made by

the Settlement Decision Makers.

7.4.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this notice relates. Under those provisions,

the Authority must publish such information about the matter to which this notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to you or prejudicial to the interests of consumers or

detrimental to the stability of the UK financial system.

7.5.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority Contacts

7.6.
For more information concerning this matter generally, contact Roshani Pulle at

the Authority (direct line: 020 7066 6241 /email: Roshani.pulle3@fca.org.uk).

Nicholas Hills
Head of Department
Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

The Financial Services and Markets Act 2000 (“the Act”)

The Authority’s operational objectives

1.
The Authority’s operational objectives are set out in section 1B(3) of the Act

and include securing an appropriate degree of protection for consumers and

protecting and enhancing the integrity of the UK financial system.

Section 56 of the Act

2.
Section 56 of the Act provides that the Authority may make an order prohibiting

an individual from performing a specified function, any function falling within a

specified description or any function, if it appears to the Authority that that

individual is not a fit and proper person to perform functions in relation to a

regulated activity carried on by an authorised person, a person who is an

exempt person in relation to that activity or a person to whom, as a result of

Part 20, the general prohibition does not apply in relation to that activity. Such

an order may relate to a specified regulated activity, any regulated activity

falling within a specified description, or all regulated activities

Section 63 of the Act

3.
Section 63 of the Act provides that the Authority may withdraw an approval

under section 59 given by the Authority in relation to the performance by a

person of a function if the Authority considers that the person is not a fit and

proper person to perform the function.

Section 66A of the Act

4.
Under section 66A of the Act, the Authority may take action against a person

if it appears to the Authority that he is guilty of misconduct and the Authority

is satisfied that it is appropriate in all the circumstances to take action against

him, including the imposition of a penalty of such amount as it considers

appropriate.

5.
Under section 66A of the Act a person is guilty of misconduct if, inter alia, he

at any time failed to comply with rules made by the Authority under section

64A of the Act and at that time was an approved person, or had been knowingly

concerned in a contravention of relevant requirement by an authorised person

and at that time the person was an approved person in relation to the

authorised person.

RELEVANT REGULATORY PROVISIONS

The Authority’s Handbook of Rules and Guidance

6.
In exercising its powers to impose a financial penalty, the Authority must have

regard to the relevant regulatory provisions in the Authority’s Handbook of

rules and guidance (the “Handbook”). The main provisions that the Authority

considers relevant are set out below.

Principles for Businesses (“PRIN”)

7.
The Principles are a general statement of the fundamental obligations of firms

under the regulatory system and are set out in the Handbook. They derive their

authority from the Authority’s rulemaking powers as set out in the Act and

reflect the Authority’s regulatory objectives. They can be accessed here:

8.
Principle 3 of the FCA’s Principles for Businesses states that:

a. “a firm must take reasonable care to organise its affairs responsibly and

effectively, with adequate risk management systems.”

9.
Principle 7 of the FCA’s Principles for Businesses states that:

“a firm must pay due regard to the information needs of its clients, and

communicate information to them in a way which is clear, fair and not

misleading.”

10. Principle 9 of the FCA’s Principles for Businesses states that:

“a firm must take reasonable care to ensure the suitability of its advice and

discretionary decisions for any customer who is entitled to rely upon its

judgment.”

Statements of Principle and Code of Practice for Approved Persons

(“APER”)

11. The part of the Authority’s handbook known as APER sets out the Statements

of Principle issued under section 64 of the Act as they relate to approved

persons and descriptions of conduct which, in the opinion of the Authority, do

not comply with a Statement of Principle.

12. APER further describes factors which, in the opinion of the Authority, are to be

taken into account in determining whether or not an approved person’s conduct

complies with particular Statements of Principle.

13. Statement of Principle 2 states that:

“An approved person must act with due skill, care and diligence in

carrying out his accountable functions.”

14. Statement of Principle 7 states that:

“an approved person performing an accountable higher management

function must take reasonable steps to ensure that the business of the

firm for which they are responsible in their accountable function complies

with the relevant requirements and standards of the regulatory system.”

15. ‘Accountable higher management functions’ includes any accountable function

that is an Authority controlled function that is a significant influence function.

Significant influence functions include the following controlled functions: CF1

(Director), CF3 (Chief Executive), CF10 (Compliance Oversight) and CF11

(Money Laundering Reporting).

16. APER 3.1.8AG provides, in relation to applying Statements of Principle 5 to 7,

that the nature, scale and complexity of the business under management and

the role and responsibility of the individual performing an accountable higher

management function within the [APER employer (in place from 7 December

2020, previously “the firm”] will be relevant in assessing whether an approved

person’s conduct was reasonable.

17. APER 3.3.1G states that in determining whether or not the conduct of an

approved person performing an accountable higher management function

complies with Statements of Principle 5 to 7, the following are factors which,

in the opinion of the Authority, are to be taken into account:

(1) whether he exercised reasonable care when considering the

information available to him;

(2) whether he reached a reasonable conclusion which he acted on;

(3) the nature, scale and complexity of the [APER employer’s] (in place

from 7 December 2020, previously “the firm’s”) business;

(4) their role and responsibility as an approved person performing an

accountable [significant-influence (in place until 6 March 2016)] or

[higher management (in place from 7 March 2016)] function; and

(5) the knowledge he had, or should have had, of regulatory concerns, if

any, arising in the business under his control.

18. APER 4.6 describes conduct which in the opinion of the Authority does not

comply with Principle 6.

19. APER 4.6.2G provides that in the opinion of the Authority, conduct of the type

described in APER 4.6.3G, APER 4.6.5G, APER 4.6.6G or APER 4.6.8G does not

comply with Statement of Principle 6.

20. APER 4.6.3G provides that failing to take reasonable steps to adequately inform

themselves about the affairs of the business for which they are responsible falls

within APER 4.6.2G.

21. APER 4.6.4G provides that Behaviour of the type referred to in APER 4.6.3 G

includes, but is not limited to:

(1) permitting transactions without a sufficient understanding of

the risks involved;

(2) permitting expansion of the business without reasonably

assessing the potential risks of that expansion;

(3) inadequately monitoring highly profitable transactions or

business practices or unusual transactions or business

practices; […]

22. APER 4.6.5G provides that delegating the authority for dealing with an issue or

a part of the business to an individual or individuals (whether in-house or

outside contractors) without reasonable grounds for believing that the delegate

had the necessary capacity, competence, knowledge, seniority or skill to deal

with the issue or to take authority for dealing with part of the business, falls

within APER 4.6.2G (see APER 4.6.13G).

23. APER 4.6.6G provides failing to take reasonable steps to maintain an

appropriate level of understanding about an issue or part of the business that

they have delegated to an individual or individuals (whether in-house or outside

contractors) falls within APER 4.6.2G (see APER 4.6.14G).

24. APER 4.6.7G provides that behaviour of the type referred to in APER 4.6.6 G

includes but is not limited to:

(1) disregarding an issue or part of the business once it has been

delegated;

(2) failing to require adequate reports once the resolution of an issue or

management of part of the business has been delegated; […]

25. APER 4.6.8G provides that failing to supervise and monitor adequately the

individual or individuals (whether in-house or outside contractors) to whom

responsibility for dealing with an issue or authority for dealing with a part of

the business has been delegated falls within APER 4.6.2G.

26. APER 4.6.9G provides that behaviour of the type referred to in APER 4.6.8G

includes, but is not limited to:

(1) failing to take personal action where progress is unreasonably slow,

or where implausible or unsatisfactory explanations are provided;

(2) failing to review the performance of an outside contractor in

connection with the delegated issue or business.

27. In determining whether or not the conduct of an approved person performing

an accountable higher management function under APER 4.6.5G, APER 4.6.6G

and APER 4.6.8G complies with Statement of Principle 6, the following are

factors which, in the opinion of the FCA, are to be taken into account:

(1) the competence, knowledge or seniority of the delegate; and

(2) the past performance and record of the delegate.

28. APER 4.6.13G (Delegation) provides, amongst other provisions, that:

(1) An approved person performing an accountable higher management

function may delegate the investigation, resolution or management of an

issue or authority for dealing with a part of the business to individuals

who report to them or to others.

(2) The approved person performing an accountable higher management

function should have reasonable grounds for believing that the delegate

has the competence, knowledge, skill and time to deal with the issue. For

instance, if the compliance department only has sufficient resources to

deal with day-to-day issues, it would be unreasonable to delegate to it

the resolution of a complex or unusual issue without ensuring it had

sufficient capacity to deal with the matter adequately. […].

29. APER 4.7 describes conduct which in the opinion of the Authority does not

comply with Principle 7.

30. APER 4.7.2G provides that in the opinion of the Authority, conduct of the type

described in APER 4.7.3G, APER 4.7.4G, APER 4.7.5G, APER 4.7.7G, APER

4.7.9G, APER 4.7.10G or APER 4.7.11AG does not comply with Statement of

Principle 7.

31. APER 4.7.3G provides that failing to take reasonable steps to implement (either

personally or through a compliance department or other departments)

adequate and appropriate systems of control to comply with the relevant

requirements and standards of the regulatory system in respect of the

regulated activities of the [APER employer] (in place from 7 December 2020,

previously “the firm”) firm in question (as referred to in Statement of Principle

7) falls within APER 4.7.2G. [In the case of an approved person who is

responsible, under SYSC 4.4.5R(2), with overseeing the firm's obligation under

SYSC 4.1.1R, failing to take reasonable care to oversee the establishment and

maintenance of appropriate systems and controls falls within APER 4.7.2G. (in

place until 8 December 2019)].

32. APER 4.7.4G provides that failing to take reasonable steps to monitor (either

personally or through a compliance department or other departments)

compliance with the relevant requirements and standards of the regulatory

system in respect of the regulated activities of the [APER employer] (in place

from 7 December 2020, previously “the firm”) in question (as referred to in

Statement of Principle 7) falls within APER 4.7.2G.

33. APER 4.7.11G provides that the Authority expects an approved person

performing an accountable higher management function to take reasonable

steps both to ensure their [APER employer’s] (in place from 7 December 2020,

previously “firm’s”) compliance with the relevant requirements and standards

of the regulatory system and to ensure that all staff are aware of the need for

compliance.

34. APER 4.7.12G provides that an approved person performing an accountable

higher management function need not themselves put in place the systems of

control in their business (APER 4.7.4G). Whether he does this depends on his

role and responsibilities. He should, however, take reasonable steps to ensure

that the business for which he is responsible has operating procedures and

systems which include well-defined steps for complying with the detail of

relevant requirements and standards of the regulatory system and for ensuring

that the business is run prudently. The nature and extent of the systems of

control that are required will depend upon the relevant requirements and

standards of the regulatory system, and the nature, scale and complexity of

the business.

Conduct of Business Sourcebook (“COBS”)

35. The following rules and guidance in COBS (as were in place during the Relevant

Period) are relevant to assessing suitability of Pension Transfer advice given to

customers:

The client’s best interest rule

36. COBS 2.1.1R:

(1) A firm must act honestly, fairly and professionally in accordance with

the best interests of its client (the client's best interests rule).

Communication is fair clear and not misleading

37. COBS 4.2.1R:

(1) A firm must ensure that a communication or a financial promotion is

fair, clear and not misleading.

Assessing suitability: the obligations

38. COBS 9.2.1R:

(1) A firm must take reasonable steps to ensure that a personal

recommendation, or a decision to trade, is suitable for its client; and

(2) When making the personal recommendation or managing his

investments, the firm must obtain the necessary information regarding

the client's:

(a) knowledge and experience in the investment field relevant to

the specific type of designated investment or service;

(b) financial situation; and

(c) investment objectives;

so as to enable the firm to make the recommendation, or take the

decision, which is suitable for him.

39. COBS 9.2.2R:

(1) A firm must obtain from the client such information as is necessary

for the firm to understand the essential facts about him and have a

reasonable basis for believing, giving due consideration to the nature and

extent of the service provided, that the specific transaction to be

recommended, or entered into in the course of managing:

(a) meets his investment objectives;

(b) is such that he is able financially to bear any related investment

risks consistent with his investment objectives; and

(c) is such that he has the necessary experience and knowledge in

order to understand the risks involved in the transaction or in the

management of his portfolio.

(2) The information regarding the investment objectives of a client must

include, where relevant, information on the length of time for which he

wishes to hold the investment, his preferences regarding risk taking, his

risk profile, and the purposes of the investment.

(3) The information regarding the financial situation of a client must

include, where relevant, information on the source and extent of his

regular income, his assets, including liquid assets, investments and real

property, and his regular financial commitments.

40. COBS 9.2.3 R:

The information regarding a client’s knowledge and experience in the

investment field includes, to the extent appropriate to the nature of the

client, the nature and extent of the service to be provided and the type

of product or transaction envisaged, including their complexity and the

risks involved, information on:

(1) the types of service, transaction and designated investment with

which the client is familiar;

(2) the nature, volume, frequency of the client’s transactions in

designated investments and the period over which they have been

carried out;

(3) the level of education, profession or relevant former profession

of the client.

41. COBS 9.2.4 R:

A firm must not encourage a client not to provide information for the

purposes of its assessment of suitability.

42. COBS 9.2.5 R:

A firm is entitled to rely on the information provided by its clients unless

it is aware that the information is manifestly out of date, inaccurate or

incomplete.

Insufficient information

43. COBS 9.2.6R:

If a firm does not obtain the necessary information to assess suitability,

it must not make a personal recommendation to the client or take a

decision to trade for him.

Suitability reports

44. During the Relevant Period COBS 9.4 set out the following rules and guidance

concerning Suitability reports.

45. COBS 9.4.1 R:

A firm must provide a suitability report to a retail client if the firm makes

a personal recommendation to the client and the client:

(2) buys, sells, surrenders, converts or cancels rights under, or

suspends contributions to, a personal pension scheme or a

stakeholder pension scheme; or

(3) elects to make income withdrawals or purchase a short-term

annuity; or

(4) enters into a pension transfer or pension Opt-out

46. COBS 9.4.7R:

The suitability report must, at least:

(1) specify the client's demands and needs;

(2) explain why the firm has concluded that the recommended

transaction is suitable for the client having regard to the information

provided by the client; and

(3) explain any possible disadvantages of the transaction for the

client.

47. COBS 9.4.8 G:

A firm should give the client such details as are appropriate according to

the complexity of the transaction.

Pension transfers, conversions, and opt-outs

48. COBS 19.1 applies, with some exclusions, to a firm that gives advice or a

personal recommendation about a pension transfer, a pension conversion or a

pension Opt-out. The following provisions of COBS 19.1 are set out as they

applied during the Relevant Period.

49. COBS 19.1.2R:

A firm must:

(1) compare the benefits likely (on reasonable assumptions) to be

paid under a defined benefits pension scheme or other pension

scheme with safeguarded benefits with the benefits afforded by a

personal pension scheme, stakeholder pension scheme or other

pension scheme with flexible benefits, before it advises a retail

client to transfer out of a defined benefits pension schemeor other

pension scheme with safeguarded benefits;

(2) ensure that that comparison includes enough information for

the client to be able to make an informed decision;

(3) give the client a copy of the comparison, drawing the client's

attention to the factors that do and do not support the firm's advice,

in good time, and in any case no later than when the key features

document is provided; and

(4) take reasonable steps to ensure that the client understands the

firm's comparison and its advice.

50. COBS 19.1.3G:

In particular, the comparison should:

(1) take into account all of the retail client's relevant circumstances;

(2) have regard to the benefits and options available under the

ceding scheme and the effect of replacing them with the benefits

and options under the proposed scheme;

(3) explain the assumptions on which it is based and the rates of

return that would have to be achieved to replicate the benefits being

given up;

(4) be illustrated on rates of return which take into account the

likely expected returns of the assets in which the retail client's funds

will be invested; and

(5) where an immediate crystallisation of benefits is sought by the

retail client prior to the ceding scheme’s normal retirement age,

compare the benefits available from crystallisation at normal

retirement age under that scheme.

51. COBS 19.1.6G:

When advising a retail client who is, or is eligible to be, a member of a

defined benefits occupational pension scheme or other scheme with

safeguarded benefits whether to transfer, convert or Opt-out, a firm

should start by assuming that a transfer, conversion or Opt-out will not

be suitable. A firm should only then consider a transfer, conversion or

opt-out to be suitable if it can clearly demonstrate, on contemporary

evidence, that the transfer, conversion or opt-out is in the client's best

interests

52. COBS 19.1.7G:

When a firm advises a retail client on a pension transfer, pension

conversion or pension opt-out, it should consider the client’s attitude to

risk including, where relevant, in relation to the rate of investment growth

that would have to be achieved to replicate the benefits being given up.

53. COBS 19.1.7AG:

When giving a personal recommendation about a pension transfer or

pension conversion, a firm should clearly inform the retail client about

the loss of the safeguarded benefits and the consequent transfer of risk

from the defined benefits pension scheme or other scheme with

safeguarded benefits to the retail client, including:

(1) the extent to which benefits may fall short of replicating those

in the defined benefits pension scheme or other scheme with

safeguarded benefits;

(2) the uncertainty of the level of benefit that can be obtained from

the purchase of a future annuity and the prior investment risk to

which the retail client is exposed until an annuity is purchased with

the proceeds of the proposed personal pension scheme or

stakeholder pension scheme; and

(3) the potential lack of availability of annuity types (for instance,

annuity increases linked to different indices) to replicate the

benefits being given up in the defined benefits pension scheme.

54. COBS 19.1.8G:

When a firm prepares a suitability report it should include:

(1) a summary of the advantages and disadvantages of its personal

recommendation;

(2) an analysis of the financial implications (if the recommendation is to

opt-out); and

(3) a summary of any other material information.

Fit and Proper test for Employees and Senior Personnel (“FIT”)

55. Guidance on the question whether an individual is a fit and proper person is

given in the part of the Handbook called the Fit and Proper Test for Employees

and Senior Personnel (FIT). FIT 1.3.1G states that the Authority will have

regard to a number of factors when assessing the fitness and propriety of a

person to perform a particular controlled function. The most important

considerations will be the person’s:

(1) honesty, integrity and reputation;

(2) competence and capability; and

(3) financial soundness.

56. For the purposes of this notice the only relevant consideration is (2)

competence and capability.

Enforcement Guide (“EG”)

57. The Authority’s policy for exercising its power to make a prohibition order is

set out in Chapter 9 of EG.

58. EG 9.2.2 states that the Authority has the power to make a range of prohibition

orders depending on the circumstances of each case and the range of regulated

activities to which the individual’s lack of fitness and propriety is relevant.

Depending on the circumstances of each case, the Authority may seek to

prohibit an individual from performing any class of function in relation to any

class of regulated activity, or it may limit the prohibition order to specific

functions in relation to specific regulated activities. The Authority may also

make an order prohibiting an individual from being employed by a particular

firm, type of firm or any firm.

59. EG 9.2.3 states that the scope of the prohibition order will depend on the range

of functions which the individual concerned performs in relation to regulated

activities, the reasons why he is not fit and proper and the severity of risk

which he poses to consumers or the market generally. At EG 9.3.5(4) the

Authority gives a serious lack of competence as an example of the type of

behaviour which has previously resulted in the Authority deciding to issue a

prohibition order.

60. EG sets out the Authority’s approach to taking disciplinary action. The

Authority’s approach to financial penalties is set out in Chapter 7 of EG, which

can be accessed here:

Decision Procedures and Penalties Manual (“DEPP”)

61. Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the

Authority’s policy for imposing a financial penalty. The Authority applies a five-

step framework to determine the appropriate level of financial penalty. DEPP

6.5B sets out the details of the five-step framework that applies to financial

penalties imposed on individuals in non-market abuse cases, which can be

accessed here: