Pension FreedomMay 20 2022

FCA admits Brits were not protected well against pension freedom risks

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FCA admits Brits were not protected well against pension freedom risks

The Financial Conduct Authority has admitted that policymakers and regulators should have done more to protect consumers from risks that arose with the introduction of pension freedoms.

In a speech today (May 20) by FCA chair person Charles Randell, he said pensions freedoms was an example of where partnering with the government and others “wasn’t as strong as it needed to be”.

Speaking at the Centre for Commercial Law Studies, Queen Mary University of London, Randell said: “As I've previously said, the speed with which pension freedoms were introduced in 2015 gave rise to a very big execution challenge for everybody: trustees, the Pensions Regulator, the FCA and the Money and Pensions Service, or PensionWise, as it then was.  

“The policies and procedures necessary to mitigate the potential harm to consumers from the pension freedoms were still being retrofitted six years later. 

“With hindsight, more could have been done to protect people from risks introduced by the pension freedoms policy, particularly if more time had been given to prepare.”

Randell added: “It’s clear from the steps taken since 2015 that the policy itself and the broader system to implement it were found wanting.”

These fundamental questions need to be properly and openly debated and answered well before responsibility passes to the FCA, rather than afterwards.Randell

Discussing the importance of consistency in policies, Randell explained that another example is high-risk investments, using the example of London Capital & Finance.

The FCA’s handling of the collapse was branded “one of the largest conduct regulatory failures in decades” by the Treasury committee, which urged the FCA to implement a change in culture to protect consumers and financial markets.

A report by Dame Elizabeth Gloster published in December 2020 found the FCA had shown "significant gaps and weaknesses" in its policies and practices ahead of LCF's collapse.

The investigation also found the regulator could have done more to protect investors in LCF and its handling of information from third parties regarding the business was "wholly deficient".

Referencing LCF, Randell argued that combating the huge number of unsuitable and sometimes fraudulent investments which are out there, particularly online,  is “simply not something the FCA can do on its own.”

He said it requires a much broader set of measures such as “closing the loopholes” that enable these investments to be marketed to people who are neither sophisticated nor wealthy enough to take the risk. 

Preventing these investments from being marketed online and providing consumer education and information to counter the lure of high returns are some ways to do this.

“Restricting government incentives, like the Innovative Finance Isa, to investments which have an appropriate level of oversight and are likely to be suitable for consumers,” he said.

“The lesson from these case studies – both where partnerships have worked well and where they haven’t been as strong as they needed to be – is that addressing many issues in financial regulation requires not just more effective regulators, but also more collaborative action across policymakers to deliver the right outcomes in the real world.

He added these policies should be based on real human behaviour, and only introduced when the system is ready to put them into practice.


Earlier this month, the FCA warned it has no oversight over cryptoassets and non-fungible tokens after it saw some recent social media posts regarding the investments.

Although it cannot comment on individual products, the City watchdog said at the time investors should be aware the FCA does not have regulatory oversight over direct investments in cryptoassets and NFTs.

Moving to the future of cryptocurrencies, Randell said that distributed ledger technologies have the potential to produce efficiencies in various parts of the financial system and the FCA is already engaging with these innovations.

However, he questioned what it would look like if the City watchdog also took on regulation of the issue and trading of speculative crypto tokens.    

“Should people be encouraged to believe that these are investments, when they have no underlying value?,” he said. “When the price of Bitcoin can readily halve within 6 months, as it has done recently, and some other speculative crypto tokens have gone to zero?  

“Should a couple with retirement savings of £250,000, which would buy them an annuity of perhaps £6,000 at age 65, be treated as 'high net worth' and encouraged or permitted to speculate on crypto or other high-risk products with these savings? 

"Should people without any significant savings or financial experience be encouraged or permitted to buy speculative crypto at all?”

With celebrities as varied as Kim Kardashian and Larry David willing to take money to promote speculative crypto, how do we curb people’s enthusiasm?Randell

Randell added: “If the success of the FCA in regulating speculative crypto is going to be judged, and in due course no doubt it will be, these fundamental questions need to be properly and openly debated and answered well before responsibility passes to the FCA, rather than afterwards.”

In his speech, he referenced a meeting with a group of students, some of who acknowledged that crypto was like gambling, while others were convinced by the internet that they could predict price movements and make money from them.  

“They were very able students, but the hope of getting rich was stronger than any facts or rational arguments I could give them,” he said. 

“With celebrities as varied as Kim Kardashian and Larry David willing to take money to promote speculative crypto, how do we curb people’s enthusiasm to do something that may seriously harm their financial lives?”

Randell also said it was important to create a plan with the FCA, and other regulators where appropriate, to understand how long is needed to prepare, to understand how far many crypto firms will have to improve before they can be authorised and how consumers will actually behave online, supported by testing.  

“Regulating crypto also means deciding how the FCA will raise the money to pay for the very significant costs of this additional regulation, including the question of whether the financial services industry as a whole should be exposed to the costs of failing crypto firms through the Financial Services Compensation Scheme, he said. 

“I think it shouldn’t, and that consumers should have to acknowledge that fact before an adviser helps them to buy crypto.”

He added: “To summarise: just like the challenges of financial literacy, digital inclusion and financial crime, a challenge like crypto demands a well-functioning partnership between government, parliament and regulators. 

“And it’s critical that within that partnership there are strong safeguards to ensure that all interests – not just the interests of people making money from pushing crypto products, but also the interests of the people whose savings will be put at risk – are heard.”

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