Yesterday (27 February) steelworkers from Port Talbot, Scunthorpe and Teesside, alongside their representatives, took to Westminster to talk about their experience of receiving poor advice to transfer out of the British Steel Pension Scheme.
The FCA, Financial Services Compensation Scheme, Financial Ombudsman Service, The Pensions Regulator and Pensions Ombudsman were also all present at the roundtable.
Philippa Hann, partner at Clarke Willmott, who has been helping steelworkers bring claims against advisers, told the regulators she has looked at claims against 42 financial firms and only one had the right insurance in place to cover the claims.
Ms Hann took particular aim at exclusions found in advisers' policies, which allow insurers to carve out products or services they will not pay out on. She said such exclusions should be stopped.
Ms Hann also attacked capital adequacy rules. She said firms with a turnover of up to £1m have to have “absolutely woeful” capital adequacy of a mere £31,000.
She said: “Please will [the FCA] take some steps to consult on closing that gap, the good advisers do not want there to be this and the FSCS does not need there to be this and I see no reason why there should be any [PI] exclusions.”
Debbie Gupta, director of life insurance and financial advice supervision at the FCA, said: “I agree with you and I would like to speak to you more about this. PI is very much in our remit and is in our sights.”
The FCA’s rules state the policy cannot exclude "any type of business or activity that is carried out by a firm in the past or that will be carried out by the firm during the time in which the policy is in force" but this is ineffective if the firm "holds additional capital resources".
Ms Hann argued this created an environment that allowed insurers to put in exclusions, and if the adviser did not have the extra capital the claim would end up at the FSCS, at the expense of the rest of the industry.
Many advisers have seen their regulatory fees increase exponentially as a result of increasing claims.
The regulator was also questioned by a steelworker on why it allows insurance companies to sell PI cover to IFAs that is not covering their whole host of services.
Ms Gupta said the regulator did take action on financial advisers that are operating without insurance.
She added: “Regarding insurance companies we are doing further work on the insurance and how the exclusions are arising and this continues to be an area of significant focus for us because yes, you are absolutely right in that this is one of the ways that we can get improved outcomes in this sector.”
Ms Gupta has previously warned advisers they must ensure all of their business is covered by their insurance. Speaking at the Personal Finance Society's annual conference in November she said: "Appropriate cover should not exclude relevant lines of business, such as defined benefit transfers.
"Simply put, a firm must at all times be able to meet its liabilities as they fall due."
Stephen Kinnock, Labour MP for Aberavon, also questioned Ms Gupta on what the regulator was doing to improve advisers’ PI and why the industry has not seen any action sooner.
Mr Kinnock said: “Prevention is better than cure. You will always get some rotten apples in a barrel but the job of the government and the regulator is to put a system in place which takes that to an absolute minimum.
“In the solicitors industry [...] if a company is found to be conducting malpractice those who are damaged by this receive full compensation through their insurance system not through the FSCS.
“If we had a proper PII system in place, like they do in the legal industry, and apply this same system to IFAs, you would have a safe net which catches and compensates those outside the FSCS and actually resembles the losses people suffer.
“My question to the FCA is why aren’t you pushing to make this happen?”
To this Ms Gupta responded that PII was a requirement and IFAs were unable to carry out transfer advice without this insurance.
Meanwhile, also at the meeting, MPs and representatives of steelworkers noted the next biggest risk to steelworkers was being targeted by claims management companies.
When asked by FTAdviser what the regulator was doing to stop this Ms Gupta said: “CMCs' work is certainly something which concerns us and we are very aware of how it has played out in this sector and is playing out in other sectors.
“They are very much part of our regulatory oversight.”
The British Steel pension transfer scandal came about after members of the British Steel Pension Scheme were asked to decide what to do with their pensions as part of a restructuring process in 2017.
As a result about 8,000 members transferred out of the old scheme, with transfers collectively worth about £2.8bn.
But concerns about the suitability of the transfers were soon raised leading to an intervention from the FCA, which resulted in 10 firms - the key players in the debacle - stopping their transfer advice service.
Some of these firms regained their permissions some months later but others, such as Active Wealth, went into liquidation and claims against it have arrived at the FSCS.
amy.austin@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
