RegulationNov 28 2022

FCA looks to extend asset retention rules for BSPS advice firms

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FCA looks to extend asset retention rules for BSPS advice firms

The Financial Conduct Authority has proposed an extension of its asset retention rules for firms who advised British Steel Pension Scheme members, as existing temporary rules are due to end on January 31.

The regulator first announced the use of its emergency powers in April as a way to prevent firms who advised members of the BSPS from disposing of assets to avoid paying compensation.

They were introduced without consultation in a policy statement, with the FCA stating the changes were in light of the risk that some firms could take steps to get rid of their assets if the rules were consulted on first.

In an update to the BSPS redress scheme today (November 28), the City watchdog said it was looking to extend these asset retention rules.

These will be similar to the current temporary rules, however the FCA has made some changes to reflect the new redress scheme.

The temporary rules contained several exclusions for firms the FCA considered less likely to contribute to the harm it is seeking to avoid, or because the rules were considered inappropriate due to the firm’s legal structure or status.

The FCA said it proposes to apply the same exclusions for the extended rules, but with a change to the threshold for the number of cases the firm advised on. 

The updated exclusions includes firms that provided BSPS transfer advice to fewer than three consumers.

“Such firms are exposed to relatively lower levels of potential liabilities and have been excluded to ensure the intervention remains proportionate,” it said. 

“This is a change from the previous exclusion for firms which provided advice to fewer than five consumers. We propose to reduce the threshold to ensure that more firms which could give rise to redress liabilities and may seek to dispose of assets are subject to the proposed rules. 

“We consider that it is important that firms that arranged a relatively low number of BSPS transfers (ie, three or more) should be subject to the proposed extended asset retention rules because of the potentially high cost of redress that may be due to customers of these firms, which firms will only hold limited resources to meet.”

The FCA said the change also ensures that a larger number of firms can prepare for the consumer redress scheme, now that the final rules for the scheme are confirmed.

Other exclusions include: 

  • PRA-authorised firms.
  • Firms that are natural persons (ie, sole traders) or unlimited partnerships involving one or more natural persons.
  • Firms that are subject to an insolvency order.
  • Firms subject to a Creditors’ Voluntary Liquidation. 
  • Firms subject to comparable asset retention requirements on their permissions through the FCA's direct and individual intervention.
Source: FCA Proposed extended asset retention requirement for firms under the BSPS consumer redress scheme

“We introduced the temporary asset retention rules in April because we were concerned that firms which might be subject to the proposed consumer redress scheme might try to avoid their liabilities to BSPS members by disposing of their assets,” the FCA said.

“We have now made the final rules for the BSPS consumer redress scheme. So we are consulting on extending the temporary asset retention rules. This extension would ensure that the rules continue to apply until firms have resolved all the scheme cases that they are responsible for, plus other relevant cases outside the scheme.”

Outcomes

The proposed rules will apply to a firm until it has resolved all scheme cases that it is responsible for under the rules of the BSPS consumer redress scheme.

In a press briefing this morning (November 28), Therese Chambers, director of consumer investments at the FCA, said the asset retention does not restrain funds from conducting their business in the normal course, but prevents them from removing money from the business.

"For example, dividend payments are not permitted," she said. "Payments to directors and other payments to directors and shareholders are not permitted. Salaries can continue to be paid. The operating costs of the business can continue to be paid.

"What we have seen unfortunately in a number of firms through this period has been the removal of substantial amounts of the firm's assets, presumably avoid those funds being paid out to steelworkers by way of redress. We expect the these rules to continue for the period of the redress scheme."

Chambers said it has around 30 enforcement investigations at the moment which are at an advanced stage.

She said: "In one instance, we actually obtained an injunction to freeze funds for an advice firm that had removed substantial assets from the firm's asset pool. Our injunction was obviously successfully upheld by the court and that is something that is going through the legal processes at the moment.

"The legal processes around our enforcement investigations do take time, and we're not able to speak about them until we get to quite an advanced stage of those processes. But we've got we've got two that are out in the public domain. At the moment, many others are now at an advanced stage and we hope to be able to be in a position to speak about them soon."

When asked about how the regulator is dealing with those most serious cases and if the individuals in these cases are still registered and authorised, she said: "We want a undertaken numerous interventions, imposing restrictions and limitations on people's ability to operate.

"[As of yet no one's being deauthorised], because the process has to play in the course."

The rules require in-scope firms to assess whether they are likely to meet their contingent BSPS redress liabilities on an ongoing basis. 

They would have to complete a prescribed Financial Resilience Assessment (FRA), and firms that have not already done so will have to report the outcome to the FCA. 

Source: FCA Proposed extended asset retention requirement for firms under the BSPS consumer redress scheme

When the FRA suggests that a firm may not have sufficient assets to meet estimated contingent BSPS liabilities, the asset restriction rules would prevent it from undertaking transactions that are not ‘in the ordinary course of business’. 

The FCA said firms under the asset restriction rules would be able to continue carrying on their ordinary business but be unable to carry out other transactions that might reduce the assets that they have to meet potential redress liabilities.

Firms that assess and have notified the regulator they have sufficient assets to meet estimated contingent BSPS liabilities would not be affected by the proposed extended asset restriction rules, or associated rules about notifications or consent for transactions, unless their circumstances change.

The consultation will close on December 23, 2022.

The FCA said if it decides to implement rules to extend the asset retention requirement, a policy statement will be published in January 2023, before the temporary asset retention rules expire.

The temporary asset retention rules that the FCA introduced in April 2022 applied to 101 in-scope firms which provided pension transfer advice to former BSPS members. 

Of these 101 firms, 26 firms confirmed that they had assessed that they could not meet their BSPS liabilities based on the outcome of the FRA. 

Accordingly, the temporary asset restriction rules applied to these 26 firms and they were not permitted to undertake transactions that were not ‘in the ordinary course of business’.

sonia.rach@ft.com

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