In a warning about due diligence failings on investments, primarily for pension scheme operators, but also for advisers and discretionary fund management providers, the regulator outlined “current threats”.
The statement read: “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 regulator stated: “Scammers are becoming increasingly sophisticated in developing products designed to defeat firms’ due diligence efforts. We want firms to be aware of the current threats and encourage them to review the effectiveness of their systems and controls.
“If your due diligence processes – both initial and ongoing – are not robust, there is a risk that you may become involved in an illegal scheme. Our intelligence and supervisory activities on pension scams are co-ordinated with our Project Bloom partners and other agencies, and we will take action as necessary.”
The reason scams have evolved towards DFMs “appears to be to obscure the nature of the ultimate underlying investment”, FCA officials said.
The FCA had this warning: “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.
“For those personal pension scheme operators which are subject to a liquid capital requirement where their schemes do not consist entirely of standard assets, failing to identify non-standard assets risks a capital shortfall.
“Other scheme operators may wish to consider whether their holding non-standard assets merits additional capital provision.”
The FCA added that it has long advocated a financial crime risk assessment for newly introduced investment products as good practice.