Scammers are upping their game to ensnare cash from retirement savers transferring pensions with increasingly sophisticated investment ploys.
Consumer watchdogs have warned pension providers and savers that scammers are masking their frauds to make spotting them more difficult – even for financial experts.
The Financial Conduct Authority (FCA) says scammers have ‘evolved’ in recent years.
Many have a technical background in financial services and manipulate pension rules to their advantage.
The first scams directly invested in unregulated assets, such as commercial property or overseas hotel resorts.
Ill-gotten gains
The next generation of scams hid the underlying assets that pension funds were invested in by putting a ‘special purpose vehicle’ company (SPV) between the pension fund and investments to divert cash by issuing corporate bonds.
Now, says the FCA, scammers are fronting their schemes with discretionary fund managers to hide the final destination for their ill-gotten gains.
“Third-generation scams now use the services of a discretionary fund manager to create an investment portfolio that does not require the direct input of the investor; this portfolio then invests in SPV bonds,’ the FCA said.
“The reason for this evolutionary process appears to be to obscure the nature of the ultimate underlying investment.”
To try to tackle scammers, the FCA demands that standard pension assets should be capable of regular accurate and fair valuations. The asset should also be readily available for sale within 30 days.
IFA failures
Any pension investment that is not on the standard list and fails to meet the valuation and sale requirements is considered ‘non-standard’ and leaves firms and investors open to exploitation by scammers.
The FCA alert was prompted by concerns that IFAs are failing to check out investments when advising pension clients, especially those with SIPPs, about the risks of moving their money into the schemes.
“A failure to understand which assets are non-standard may leave a firm vulnerable to exploitation by third parties, and we re-emphasise the need for firms to conduct – and retain – appropriate and sufficient due diligence. We have long advocated a financial crime risk assessment for newly introduced investment products as good practice,” says the alert.
The alert highlights the risks associated with trading securities and fixed interest stocks, such as corporate bonds.
