FCA issues new rules for transfer of assets between platforms

13 December 2019

The FCA has published Policy Statement 19/29 the FCA finalised new rulesfor transfer of assets between platforms.

The Policy Statement follows on from the consultation paper CP19/12 issued in March 2019, on rule changes that aimed to make it easier for consumers to transfer their assets from one platform to another.

The consultation was part of a wider package of remedies from the regulator’s Investment Platforms Market Study (IPMS), which found that competition in the market was limited by the barriers facing consumers when they try to switch platforms.

In the Policy Statement published on 13 December 2019, the FCA finalised new rules, which after feedback were unamended from those put forward in the CP19/20. They will come into force on 31 July 2020.

The regulator said it will carry out a further review in 2022, at which point it will consider whether further regulatory action is required.

New package of rules

The new package of rules introduces requirements for platforms to:

  • offer consumers the choice to transfer units in investment funds that are common to both platforms via an in-specie transfer
  • request a conversion of unit classes, where this is necessary to enable an in-specie transfer to take place
  • ensure that consumers moving onto a new platform are given an option to convert to discounted units, where these are available for them to invest in.

The intention of the new rules, the regulator aid, is to complement the existing rules on transfers and re-registration, as well as industry initiatives that aim to make it easier for consumers to move their assets from one platform to another.

As a result of the new rules, the regulator said it expected to improve competition in the sector, increase efficiency and improve the consumer experience.

“We consider that overall this will help us to deliver public value through a better functioning retail distribution sector.”

Building on the IPMS

The new rules aim to build on the IPMS Final Report, which welcomed and supported industry commitment to improving the switching process, and were aligned with the regulator’s desired outcomes to:

  • improve standards for transfer and re-registration times from an industry-agreed maximum timescale for each step in the switching process
  • ensure clearer customer communications at the start of the switching process, explaining the transfer process, timelines and giving a point of contact for any questions or complaints
  • publish transfer times data so consumers and third parties can compare platform performance

The rules introduced in Policy Statement, the FCA said, “will support these initiatives, providing clarity on what we expect of firms when carrying out transfers on behalf of consumers.”

Responding to the Statement, Andy Bell, chief executive of AJ Bell, said that while he concurred that transfers of assets between platforms is an area that needs improving in order for customers to more easily move to better value services, he cited multiple share classes as the “bigger barrier” to transfers and expressed disappointment that the regulator had ruled out cash rebates as an option.

Bell said: “The decision by the FCA to require platforms to offer in-specie transfers of funds as well as share class conversions where this is required to facilitate an in-specie transfer is a welcome move. However, this largely just reinforces what is already common practice within the industry.

“These changes won’t remove the complexity of multiple share classes which is arguably a bigger barrier to transfers, because not all platforms can hold all share classes.  The solution here is to reintroduce cash rebates, on the basis that these must all be paid to the customer’s account and cannot be retained by the platform, so it is disappointing the FCA has decided against this.

“Reintroducing cash rebates would enable there to be a single retail share class for each fund with platforms able to negotiate discounts for their customers in the form of cash rebates that are paid into the customer cash account on the platform. Negotiating lower fund fees for customers is something the FCA has been encouraging platforms to do. Fears that these cash rebates will be used to confuse platform pricing are unfounded and a single share class per fund would enable far easier transfers between platforms.

Exit fees

The FCA has put back its proposed ban on exit fees and will consult further on this issue early in 2020. Bell said the company would also be providing feedback for that consultation.

“We are supportive of the FCA’s direction of travel here and we believe any ban or cap on exit fees should be applied across all similar products and services, including life company products and vertically integrated firms

“Exit fees are not unique to platforms and therefore it is not right to look at them in isolation. The most pernicious exit fees in the market are those that are embedded within products that are designed to recoup upfront costs of selling the contract – these can be as high as 5 – 6%.

“Applying any ban or restriction on exit fees across the whole industry would ensure there is a level playing field for what are very similar products and would be a good outcome for customers.”

STAR initiative

Tom McPhail, chair of the STAR Steering Group, the industry joint venture set up to improve transfer times and customer communications in the investment and pensions markets, said the FCA had confirmed that it is happy with progress made by the industry through the STAR initiative.

STAR recently announced that it has over 50 companies signed to it including the leading names in the industry, representing a cross-section of the financial services industry.

While STAR has made significant progress in the active industry working groups, which have been held over the last six months, the FCA said it will continue to monitor the initiative in 2020 and consider further action if necessary.

McPhail confirmed that during 2020/2021, “STAR will start to collect and publish the performance of companies when executing transfers, which will provide regulators, customers and their financial advisers with clear evidence of a commitment to improve their performance.”

“This will create a competitive advantage for organisations leading the industry with STAR,” he added and urged organisations involved in the transfer process chain and the reporting of management information, to join the initiative “and show commitment to improving customer switching  transfer and re-registration experiences.”

Download the FCA Policy Statement here.

Professional Paraplanner