British Steel May 22 2023

FCA warns about third party BSPS redress calculations

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FCA warns about third party BSPS redress calculations

The Financial Conduct Authority has written to firms with concerns about third party actuarial providers used for redress calculations in advance of the British Steel pension redress scheme.

In a Dear CEO letter last week (May 19), the FCA said since its decision to implement a redress scheme for BSPS members in November 2022, it has become concerned by some advice firms conducting redress calculations before the scheme commenced, using online portals provided by third party actuarial providers.

“Our concerns are heightened where there has been no actuarial oversight of the inputs into using third party actuarial provider portals,” it said. 

“This appears to have been a contributing factor to the misleading redress offers made by financial advisory firms to former BSPS members before the scheme started.”

The letter, which is signed by Nick McGruer, head of department, advisers, wealth and pensions 2 department at the FCA, said some of these offers were harmful and unsolicited.

In February, the FCA identified more firms that it believed were making unsolicited offers to former BSPS members who had not made complaints.

At the time, the regulator said it had identified 15 firms who were engaged in the misconduct - most of which it said were associated with British Steel Adviser Group (BSAG) which was advised by FS Legal. 

This is the group that made a legal challenge against the FCA’s decision to set up a redress scheme, which has since been withdrawn.

The FCA said it has reviewed calculations conducted by firms using third party actuarial provider portals and identified the following key concerns:

  1. Firms not using the first day of the quarter to value benefits/for assumptions and, instead, using variable valuation dates which benefit the firm by ultimately producing a lower redress figure. 
  2. Firms using the revised methodology set out in PS22/13 for offers, despite that methodology not being in force at the relevant time, causing confusion for consumers and undermining public confidence. 
  3. Firms, wilfully or otherwise, making technical errors that we would not expect persons competent in the calculation of redress to make.

As a result of these concerns, the FCA reminded firms of its principles.

“Firms and individuals will be held accountable for breaching our principles, and we will continue to use the full range of our regulatory powers to prevent harm to consumers,” the FCA said. 

In the FCA’s final redress scheme rules, it confirmed it would develop a calculator to provide fair and consistent redress to BSPS consumers. 

The calculator was developed by expert actuaries and was subject to "significant" internal and external reviews, including by the government actuary’s department, before its release on April 26.

The FCA said firms will need to use this calculator for scheme cases and said its expectation is that firms should also use it for non-scheme cases. 

This is particularly important for non-scheme cases where the comparator scheme is the pension protection fund to ensure that the calculation takes account of the pensions insurance corporation buyout to assess redress fairly, the FCA said.

“The calculator has been developed so in most instances firms can calculate redress for consumers without the need for actuarial oversight.”

The City watchdog said where firms have calculated redress for former BSPS members using a third party online portal, they should review those offers, even where they have been accepted on a full and final basis.

“If the calculations were made without skilled actuarial oversight of inputs and/or are deficient in any way outlined below, firms should recalculate redress using our calculator,” it said. 

“If this shows the original settlement offer was too low, then the difference should be offered and paid to the consumer." 

“Alternatively, if the original settlement was higher than the recalculated redress, the firm must not ask the consumer to repay the difference.”

In either instance, it said the firm should notify the FCA in line with principle 11.

“As part of our ongoing supervisory work, we may request further information to ensure firms comply with our expectations,” the FCA said.

sonia.rach@ft.com

What do you think about the issues raised by this story? Email us on ftadviser.newsdesk@ft.com to let us know