The Financial Conduct Authority (FCA) said it is “very concerned at the increase we possess seen in cases in which the introducer has an inappropriate influence on how the authorised firm carries out its business”.

The regulator is particularly concerned where introducers are having influence over “the final investment choice”.

“Introducers who introduce customers to you with a view to those customers purchasing investments may only be capable to do so if it is for the provision of independent advice,” the FCA said in its fresh alert. “‘Independent’ in this context means that you are independent of the issuer of the investment.”

“It is essential that at entire times you maintain full and complete ownership of the advisory process between yourselves and your customer, and any regulated advice you provide must meet the requirements set out in our Handbook,” it said.

The FCA also said that is concerned that some investment firms are outsourcing the provision of financial advice to “unauthorised entities or to other authorised firms that do not possess the relevant permissions, or are not their appointed representatives”.

“numerous authorised firms we possess visited do not possess adequate input or control over the advice they are ultimately responsible for giving to customers,” the FCA said. “This has been particularly evident in relation to advice on switching and transfer/conversion of pension benefits. We possess specific concerns where this advice involves movement of pension pots to unregulated, lofty risk, illiquid products, whether they are based in the UK or overseas.”

Financial services expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said the FCA’s alert should “remind firms that outsource any aspect of regulated activity that they will silent remain responsible to the regulator and that they require to ensure that necessary controls and monitoring are in place”. 

“In particular, regulated firms must build sure that both they and their introducers comprehend in practice exactly who is carrying out what activity and that the necessary permissions or exemptions are in place for any aspect of the activity that should be regulated,” Ashby said. “The scope of services and necessary restrictions should also be clearly documented as piece of this process.”

In its alert the FCA said it is concerned that introducers are obtaining “consumer policy information” and that the data is “being passed to persons with no correct to it”, and with the fact some investment firms are providing simplified or limited advice to customers referred to them without any “direct contact with the customer themselves”.

The FCA said another area of concern was that it had seen examples where introducers had designed the simplified or limited advice process, such as “heavily templated pre-prepared suitability reports”, which it had sent to investment firms alongside a “reassurance that the process meets regulatory requirements”.

The FCA also said that some investments facilitated by introducers do not qualify for Financial Services Compensation Scheme and Financial Ombudsman Service protection and are therefore the FCA’s view is that they are “not suitable for retail clients”.

“Some of these investments are closely linked to or controlled by the introducers and are badly run, while others may be outright scams,” it said.

Investment firms should conduct “robust due diligence” on introducers and possess a “robust vetting procedure to ensure the introductions possess been sourced legitimately”, the FCA said. The firms should be capable to “demonstrate” that they possess “full and complete ownership of the advice” they provide. They should also only recommend investing in products that they “comprehend fully”, the regulator said.

The FCA said: “We are co-ordinating our intelligence and supervisory activities on pension scams and unsuitable advice, and will seize action as necessary.”

“Providing a simplified or limited advice process to consumers to facilitate investment into unregulated, lofty risk, illiquid products, whether they are based in the UK or overseas, or delegating regulated activity to an unauthorised party will not standfor that the firm can avoid liability or regulatory action for unsuitable advice (or lack of advice). Following supervisory intervention, firms possess varied their permissions so they can no longer operate a business model where there is an inappropriate influence by the introducer. It will be you and your firm against whom regulatory action will be taken, and there is also a risk that you may become involved in an illegal scheme,” it said.