Advice firms are expected to incur around £9.1mn in compliance costs to review their historical British Steel Pension Scheme transfers as part of the regulator’s redress scheme.
In a consultation paper published today on the consumer redress scheme for BSPS (March 31), the Financial Conduct Authority said it expects £71.2mn to be paid in compensation to consumers.
The regulator said the redress costs of the scheme will be paid by advice firms and their professional indemnity (PI) insurers. Redress will only be directly payable by firms whose past advice on BSPS transfers harmed consumers.
It is expected that the scheme will apply to 343 firms, the FCA said.
As a result of the scheme, some advice firms may be unable to cover their liabilities and may leave the market, the City watchdog explained.
“Any such market exit is a direct result of providing unsuitable advice to BSPS members and now putting consumers back in the financial position they would have been in if the advice they received had been suitable and compliant,” it said.
In cases where advice firms become insolvent, outstanding liabilities will be passed to the Financial Services Compensation Scheme which will in turn represent a cost to wider industry of an estimated £20.6mn.
In addition to redress payments that firms will need to pay to BSPS members who are found to have been given unsuitable advice, the FCA also estimates that advice firms will incur around £9.1mn in compliance costs to review their historical BSPS transfers, and to deal with possible complaints and challenges regarding their assessment.
Those firms that have given unsuitable advice will incur an estimated additional £1.4mn to calculate and administer the redress due.
The FCA said the proposal could make professional indemnity insurance harder to obtain for firms that have previously advised BSPS consumers.
However, the regulator said it considers it unlikely that the proposal would lead to wider deterioration in the PII market.
“We believe the risk that competition in the market for DB transfer advice will be materially affected by our proposal is very low. We will undertake further work during the consultation period to better understand these factors in advance of the policy statement.”
The proposal will also lead to administrative costs for the FCA, the Financial Ombudsman Service, and FSCS.
The FCA estimates that it will incur costs of around £3.2mn, while the Fos will incur costs of £0.4mn, without taking into account fees from firms, and FSCS will incur administrative costs of £0.6mn, which will be recovered from firms via the FSCS levy.
To help firms to carry out redress calculations, the FCA is also considering whether it is possible to develop a calculator.
A calculator could require users to input relevant information about the transfer which would be used to determine how much the consumer has lost between the date of transfer and the date of assessment.