FCA introduces new rules for customer transfers

Out-Law News | 16 Dec 2019 | 4:49 pm | 2 min. read

The UK’s Financial Conduct Authority (FCA) has published a package of new rules intended to make it easier for customers to transfer from one investment platform to another without having to liquidate their assets.

The move follows a market study and consultation earlier this year. The new rules follow feedback received during the consultation process, which the regulator said supported the principle that customers should be able to make ‘in-specie’ transfers between platforms without liquidating their assets.

The rules, published in a policy statement (23 page / 552KB PDF), introduce requirements for investment platforms to offer consumers the choice to transfer units in investment funds common to both platforms via an in-specie transfer. Platforms will also have to request a conversion of unit classes where this is necessary to enable the in-specie transfer to take place, and ensure that consumers moving onto a new platform are given an option to convert to discounted units, where these are available.

Some of the new rules will apply to both receiving and ceding platforms, for instance those which require firms to tell consumers about their transfer options. Other rules are more specific about which platform needs to act.

Financial services expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law, said the policy statement and the rules meant previous discussions about a flexible fund pricing approach using fund cost rebates were over for the time being. Ashby said the FCA had noted that it did “not currently intend” to allow a move back to the rebate approach because of the fear of confusing customers.

“The direction of travel towards in-specie transfers has been clear since the original consultation and an investment platform that is transferring assets to another will need to consider the practicalities of how to arrange for conversions of investment units into a more common unit class before moving the assets,” Ashby said.

“Whilst the FCA has noted the issue of potential increased cost for investors moving to a standard unit class, the onus has been left with the platform to consider the materiality of the cost impact and to inform customers of the change. Firms will also need to check that terms and conditions with customers align with the new requirements, including the option to move to a discounted unit class if available post-transfer, and that advice provided to the customer deals with any cost impacts,” Ashby said.

Ashby said firms would have to wait to find out how the FCA would tackle the question of exit fees. Previously the regulator has considered a total ban on exit fees as the most appropriate way of reducing consumer harm, but it said it would consult on this issue in the first quarter of 2020.

Responses to the FCA consultation said technology was an important factor in enabling transfers and urged the regulator to encourage adoption of industry-led initiative ‘STAR’, which is designed to improve transfer times and customer communications.

Respondents said firms would also be able to support unit conversions more easily if STAR, along with TISA Exchange standards, were adopted more widely.

The FCA said the new rules were part of a wider package of actions to improve the switching process, which included the STAR initiative. It said that it expected the overall package to result in a “prevalence” of in-specie transfers for most asset classes, but would keep the improvement process under review.

The conversion and transfer rules are due to come into force on 31 July 2020.