Last week (February 11), Labour MP Nick Smith wrote to the Financial Conduct Authority, the Financial Ombudsman Service and the Financial Services Compensation Scheme and asked them to look at the role of introducers with regards to BSPS transfers, expressing his concern about the way they are regulated.
Smith said: "As you will know, introducers have been widely reported to have played a key role in the mis-selling surrounding BSPS transfers. While in many cases the introducers were authorised and regulated [independent financial advisers], in some cases they were not, so they don’t have to have any oversight by the FCA nor are their clients protected by the Fos or FSCS.
“Indeed, in the past, there have been concerns and action from regulators on unauthorised introducers who had misled consumers into thinking they were regulated bodies or had even put money into risky investments which later failed. In 2017, the FCA launched legal action against two pension introducers for misleading customers.”
Smith said he was “deeply concerned” at the number of BSPS mis-selling cases that involved introducers, citing one in particular that referred 75 steelworkers to Active Wealth (UK) Ltd, which was subsequently declared in default by the FSCS.
Despite the introducer and Active Wealth “[acting] together in the misselling, only one was liable to pay compensation to the claimants. This has limited the amount that steelworkers have been able to claim back,” he explained.
Fos complaints
He also expressed his concern that the Fos is not upholding any complaints pertaining to introducers where there is no written record of advice being given by them.
He also said there was a "refusal to uphold any complaints that there was a joint venture between the introducer and the pension transfer specialist (PTS) even where more than 30 clients of the same firm have complained that they were verbally advised to transfer by the introducer, never spoke to the PTS and the introducer and PTS shared in the transfer fee”.
“In one case, the PTS was given a room in the offices of the introducer and physically walked the clients into the office for the inevitable advice to transfer,” Smith said.
He pointed to FCA advice which stated that transferring out of defined benefit schemes may only be the right course of action in as little as 10 per cent of cases, arguing that introducers should have been aware that there was a risk of bad advice being given if more than one in 10 of the members they dealt with opted to transfer.
“They should certainly not have turned a blind eye and continued to refer clients where they knew the outcome was not in the clients’ best interests. One can only assume that the lure of fees drove this behaviour and I cannot imagine that you could wish for them to benefit from that,” he wrote.
Questions over regulation
In his letter, Smith posed a number of questions for the regulators querying their rules for regulating advisers and introducers, and attempting to determine how many compensation awards followed cases where introducers were involved.
He also asked how many introducers had been liable for compensation or faced criminal prosecution.
“While all of these questions will hopefully increase understanding of this area, I am particularly concerned about the role of authorised advisers acting as introducers in some of these cases,” he continued.
“As the FCA provided advice to 148 authorised advisers who refer clients to pension specialists in 2017 (introducing), if any of these firms have been involved in mis-selling after that advice was given, then they should face serious action as there is no excuse for their actions. They are currently not being held to account by the Fos nor by you.”
Finally, Smith queried the relationship between authorisation and marketing, pointing out that introducers who are regulated IFAs could advertise that they are “authorised and regulated by the FCA”, when in fact they are only authorised with respect to specific activities like investments, and not DB scheme transfers.
“This could have the effect that a consumer believes the firm is fully regulated by the FCA, when they may not be regulated to provide the services that they are doing. In this instance, there could be the greater consequence that any transactions may not be eligible for compensation by either the Fos or FSCS,” he warned.
The concerns stem from 2017, when 7,700 BSPS members lost significant sums of money after being advised to transfer out of the scheme, prompting harsh criticism from MPs of the role of the FCA.
The FSCS had paid out £36.5mn in compensation to members as of January 25.
The FCA announced in December that it would consult on the creation of a redress scheme for members hit with bad advice between March 1 2017 and March 31 2018. It sent letters to the heads of companies that provided bad advice demanding they have sufficient assets to cover compensation payments.
The National Audit Office, meanwhile, is to carry out a review of the FCA’s role in the scandal, which is scheduled for spring this year.
Benjamin Mercer is a senior reporter at FTAdviser's sister publication Pensions Expert
