Forensic File Reviews, Complex Pension Scrutiny and Ongoing Servicing Audits

Second-line quality assurance under COBS, SYSC and the Consumer Duty

Supervisory scrutiny of UK advice files has moved past the tick-box checklist. A forensic review stress-tests complex retirement planning, unpicks non-standard SIPP assets, and identifies balance-sheet liabilities before a thematic visit, a Section 166 appointment or an Ombudsman complaint forces the point.

The standard is the one applied in Financial Ombudsman Service casework, Skilled Person programmes and network supervision. The record is tested under COBS, SYSC and the Consumer Duty (PRIN 2A): was the information complete, was the recommendation suitable, and can the firm evidence the service it charged for?

The notes linked through this page are the detailed tests. This page is how they fit together.

Three lines of a file review

Who the review is written for

Appointed representative networks and principals

Distributed advice practices need an independent second line that can satisfy SYSC and the principal’s own supervisory duties. A network file check that only re-reads the suitability report will not do that.

Directly authorised wealth managers and IFAs

Defined benefit transfers, pension switches and other irreversible recommendations need peer-level clearance before funds move, and extra capacity when a cohort arrives at once.

SIPP operators and discretionary managers

The questions here are asset eligibility, standard against non-standard liquidity, and whether the distribution channel that brought the member in should have been refused.

Compliance directors and SMF16 holders

Second-line testing has to be calibrated enough to stand up to internal audit, a Skilled Person and an FCA supervisory inspection. A grade without a file extract is not that record.

Defined benefit transfers under COBS 19

“Flexibility” is not a reason to overturn the presumption

Under COBS 19.1.6G, the starting point is that a pension transfer is not suitable. Overturning that presumption takes objective, contemporaneous proof that remaining in the ceding scheme produces clear detriment, or fails a critical objective the scheme cannot meet.

The failure mode is treating “flexibility”, “control” or “leaving a legacy” as a substitute for that proof. A client cannot opt out of the suitability rules, and an adviser cannot act as an order-taker for a safeguarded benefit.

The review asks whether the ceding scheme’s own provisions were examined before a flexible alternative was modelled: guaranteed indexation, a spouse’s pension, commutation, and the other features the member would give up.

Stress-testing the APTA and the TVC

Under COBS 19.1.2CR, stochastic cashflow modelling may support the advice only where outcomes at the 50th percentile are no less conservative than the deterministic assumptions in COBS 19 Annex 4A and Annex 4C.

The failure is using a median stochastic return to hide early sequence-of-returns risk, or stripping out advice, platform, discretionary and transaction costs — often 1.50% to 2.20% a year — so the pot appears to last five to fifteen years longer than it will. The prescribed TVC hurdle, commonly 5.5% to 8.0% or more net, is set against the net expected return of the proposed portfolio. Projections are run net of all fees, with a downside shock in the early retirement years, and longevity taken out to age 95 or 100.

The full note is Stress-Testing the APTA & TVC: When Stochastic Cashflow Models Cross into “Wishful Thinking”.

Sponsor covenants and the PPF

COBS 19.1.2DG requires information about scheme funding, the employer covenant and Pension Protection Fund entry to be balanced, objective, and supported by specialist expertise.

The failure is using a technical-provisions deficit, or a rumour of corporate restructuring, to move a client out of a guaranteed scheme without an actuarial report or a notice from The Pensions Regulator. The contradiction to look for is a recommendation to transfer from an underfunded scheme whose trustees have already applied an insufficient-assets reduction to the cash equivalent, while the file cites fear of underfunding as the reason to leave.

The full note is Unpacking Scheme Solvency: Handling Employer Covenants and PPF Nuance Under COBS 19.1.2DG.

DBAAT scoring and Section 166 redress

The Defined Benefit Advice Assessment Tool does not grade a narrative. Gate 1 asks whether the firm gathered the information the advice needed. Gate 2 scores the financial trade-offs. At the intersection of attitude to transfer and capacity for loss, capacity for loss wins. Where guaranteed income does not cover essential living costs, capacity for loss is low or zero, and the tool scores the advice unsuitable with detriment, however keen the client was to transfer.

The full note is The DBAAT File Audit: Scoring Section 166 Redress Liabilities Before the Regulator Arrives.

Abridged advice and full advice

Under COBS 19.1A, abridged advice has two outcomes only: a recommendation not to transfer, or a notification that it is unclear. It is not a soft route into a transfer.

The failure is an unreasonable bridge — a “remain” outcome followed at once by full advice, with no verifiable change in circumstances — or discounted abridged advice used to get around the contingent charging ban in COBS 19.1B. The boundary check is mechanical. Abridged advice does not include an APTA, a TVC or a destination investment mandate, and it is not a basis for a Section 48 confirmation to the ceding trustees.

The full note is Abridged Advice vs Full Advice: Managing the Boundary Under COBS 19.1A.

High-risk SIPPs and non-standard assets

Operator due diligence after Adams v Options UK

In Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474, the Court of Appeal confirmed that an execution-only disclaimer cannot contract out of Section 27 of FSMA, Principle 2, or SYSC 6.1.1R.

The failure is treating the operator as a passive conduit: a retail transfer into storage pods, agroforestry or another unregulated asset, supported by a member indemnity and nothing else. The review asks whether the investment committee examined legal enforceability, liquidity, title and the distribution channel, and whether it used the duty to refuse the asset before it entered the trust.

The full note is SIPP Operator Due Diligence: Lessons from Adams v Options UK and the FCA Due Diligence Framework.

The 30-day standard asset test

Under the SIPP capital rules, a standard asset has to be realisable within 30 business days for an amount that is certain, or independently verified, without an unreasonable speculative discount. See IPRU-FS 5.2.33R.

Classifying an unquoted bond or an offshore security as standard keeps the capital number down on paper. Reclassified as a non-standard asset, the capital surcharge can remove the solvency margin and trigger a notification under SUP 15.3.11R. The test is the valuation source — an observable price, or a promoter’s own mark — and the disposal record. If real sales took longer than 30 days, the asset is not standard.

The full note is Auditing Illiquidity and Valuation: The 30-Day Standard Asset Test Under SIPP Capital Adequacy Rules.

Commercial property, the 50% cap and connected leases

Section 182 of the Finance Act 2004 caps borrowing for a money purchase arrangement at 50% of the arrangement’s value immediately before the loan. A lease to a connected party has to stay at arm’s length. PTM120000 is HMRC’s starting point for that test.

The failure is measuring the loan against the gross purchase price, or against a future developed value, rather than net assets before the borrowing. A second failure is letting a connected trading company run up rent arrears with no commercial recovery. The review checks that the valuation was dated immediately before completion, that a RICS market rent was on the file, and that the bank statements match the lease. The sanction for getting this wrong is an unauthorised payment charge and a scheme sanction charge.

The full note is SIPP Borrowing & Commercial Property: Navigating the 50% Net Asset Cap and Connected-Party Leases.

Decumulation in a bespoke SIPP

Flexi-access drawdown or an uncrystallised funds pension lump sum, recommended inside a SIPP that is rich in assets and poor in cash, often cannot be paid. The failure is crystallising a commercial property into drawdown without a liquid path to the 25% pension commencement lump sum, or selling the quoted holdings to fund income and leaving an illiquid property as the scheme.

The cash-buffer check is a rolling reserve of about two years’ cash or near-cash, ring-fenced in the SIPP bank account, plus a current valuation for any in-specie movement, and a clear warning about HMRC’s Month 1 emergency tax code (1257L M1) before the first payment.

The full note is Decumulation Friction: Phased Drawdown, In-Specie Transfers, and Illiquid Asset Traps — When It’s Not So Straightforward.

Unauthorised introducers and Section 27

An unregulated lead generator, or a collusive SIPP factory, is a Section 27 problem: the underlying agreement may be unenforceable, and the redress is the member’s loss in full. Onboarding is screened for five repeatable marks.

• Critical. An unregulated lead generator delivering completed SIPP packs. Refuse the business, freeze the relationship, and tell the FCA.
• Critical. Ten or more near-identical cases into the same esoteric asset within days. Stop the pipeline and review the cohort.
• High. Intermediary commissions above 5% to 15%. Test the invoice against what the member was told, under the price and value outcome (PRIN 2A.4).
• High. An appointed representative acting outside the principal’s permissions. That is unauthorised activity under section 19 of FSMA.
• High. A 2021 transfer-regulations amber flag, including a high-risk or overseas link. The statutory right to transfer depends on a MoneyHelper safeguarding appointment.

The full note is Financial Crime & Unauthorised Intermediary Funnels: Spotting the “Introducer” Red Flags.

Ongoing charges and fee-for-no-service

The ongoing advice retainer

Taking 0.50% to 1.00% a year as an ongoing adviser charge, without contemporaneous proof of an annual suitability review, breaches the price and value outcome (PRIN 2A.4) and the duty to avoid foreseeable harm (PRIN 2A.2).

A CRM status of “review completed”, or a valuation that went out automatically, is not that review. The file is tested on three points.

• Substance. Wrappers, asset allocation and any discretionary mandate were actually reconsidered under COBS 9 or COBS 9A.
• Capacity for loss. Changes in health, retirement timing or expenditure are recorded in pounds and pence.
• Cumulative drag. Adviser, platform, discretionary and transaction costs are reconciled to the service the client received.

The client who does not respond

Fees that keep leaving a disengaged client’s arrangement are a redress book, not an administration nuisance. A defensible control has three steps.

• More than one channel. Contact through the secure portal, email and post, each one recorded.
• A stop-clock. A stated point — often 60 to 90 days after the review was due — at which the ongoing charge is switched off at the platform.
• Vulnerability. Confirmation that silence was not cognitive impairment or bereavement, under PRIN 2A.6.

The four-tier file grade

Every file closes on one grade. The grade is the determination, not a commentary on how hard the case was.

When the review is commissioned

• Before the money moves. Defined benefit transfers, non-standard SIPP assets, complex switches, and any case involving a vulnerable client.
• On a retainer. A monthly or quarterly sample, often five to twenty files per adviser each year, so the book stays audit-ready.
• Before a purchase. A target client bank, read for unserviced cohorts, advice-gap liabilities and recurring fees that lack a service.
• Before the supervisor asks. A historical cohort, tested ahead of an FCA data request, a Skilled Person review, or the board’s annual assessment.

How the file moves through review

Summary

A defensible advice file is a contemporaneous record that survives a scoring tool, a capital calculation and a question about what the client paid for. The tests above are how defined benefit transfers, high-risk SIPPs and ongoing charges are read before the regulator, a Skilled Person or the Ombudsman reads them first.

Where the need is pre-sale clearance, a sampling retainer, or capacity for a past-business review, the place to start is the contact page.