A report into the handling of the BSPS saga by the Pac, published today (July 21), looked at how the regulator handled the issue, the proposed redress scheme and how prepared the Financial Conduct Authority is for future risks.
The committee found that the FCA had “inadequate oversight" of firms involved in the BSPS scandal and was “consistently behind the curve” when responding to the issue.
Echelon Wealthcare principal Al Rush said the Pac report is “most impressive in scope”.
Rush said the report refers to the actions of the FCA, Financial Services Compensation Scheme and Financial Ombudsman Service in the periods before, during and after the BSPS scandal broke.
“Although it doesn’t actually refer to the FCA as dysfunctional, it may as well have,” he said. “Fearful of acting, slow to act, poor decision making, a lack of leadership, unfit for purpose, the litany goes on. Which is a shame, because there are many very good people at the FCA.
“The problem is more the culture and the organisation, and the fact that within the FCA exist fiefdoms, career agendas and all manner of conflicts that exist within any big organisation.”
As part of the recommendations made, the Pac said the FCA should provide the committee with an update on the extent and impact of unsuitable advice on BSPS members and what it has done to prevent a similar case from occurring again.
In particular, it has asked for changes to its approach to regulating small advice firms.
After identifying problems with the advice market in 2015, the committee said the FCA failed to take effective preventative action and has been slow to implement its regulatory powers including a ban on contingent charging and temporary asset retention restrictions.
It recommended the FCA examine what can be done to improve the data and insight that they need to inform a more proactive approach to regulation, and what lessons can be learnt from its response to the Covid-19 pandemic.
Philip J Milton & Company chartered financial planner Felix Milton, said: “The report paints a very damning picture of the FCA and its current oversight and I welcome the recommendations made by the committee.
“Of particular note, I am glad to see that there has been comment on the fact that many consumers use the unnecessary and expensive claims management companies to assist with their complaints, often losing large amounts of their compensation in the process. The FCA must ensure a scenario like the British Steel members have suffered does not happen again.”
FTAdviser understands the pension freedoms were introduced very quickly in 2015 which meant the operational infrastructure that needed to be in place to support them was not available.
For example, data on the number of BSPS transfer requests were held by the scheme trustees and was not provided to the FCA.
Clarke Willmott partner Philippa Hann said: “We are delighted to see a focus on justice between the steelworkers who have already received compensation and those who will do so in the future and on those advisers who have fallen outside of the reach of the redress processes who repeatedly introduced steelworkers to particular pension transfer specialists in return for benefits to themselves.”
Further changes needed
The committee said the FCA should also report on the progress being made on its 30 active enforcement cases, how it is updating its approach to make a clearer distinction about how it enforces against poor conduct and rogue advisers, and how it signals the outcome of its actions to the wider market.
It recommended the FCA review whether it had sufficient enforcement powers to deal with bad actors in the financial industry and said the Treasury should consider how to address concerns about activity relevant to, but not within, the FCA’s remit, such as the actions of introducers in cases such as the BSPS.
Rush said the FCA should be “safely and carefully dismantled” and replaced with a new ethos.
“What that ethos looks like, how it is structured and how it is staffed, I don’t know - that’s well above my pay grade,” he said. “I do think though, it needs to get out of London and be far more dynamic and local to respond to local instances of bad practice.”
Meanwhile, Penney, Rudy & Winter chartered financial planner David Penney, said he agreed with the majority of the conclusions.
“On a more general level, the FCA were clearly too late in reacting to the impact that the pension freedoms would have on DB transfers. There are a number of failings relating to BSPS, but those failings potentially would not have been as damaging had action been taken sooner to prevent the mis selling scandal that many of us predicted in 2015.
“Focusing on BSPS, I do not understand why the FCA were so slow to react,” he added.
“I also do not understand why they did not take more enforcement action, particularly in respect of the individuals running firms who were ripping people off and then phoenixing to do it all again under a new firm and dumping the liabilities on the FSCS.”
PII cover
Elsewhere, the Pac also mentioned professional indemnity insurance in the report, stating that there are uncertainties around it as the availability of cover has become constrained by limited providers and high costs.
The committee said the FCA is yet to define its expectations for the PII industry or fully consider its effects on the stability of the pension transfer advice market.
It argued that the FCA should be more proactive and consumer-focused in its engagement with stakeholders.
Personal Financial Society director of policy and public affairs Matthew Connell, said: “We support the report’s conclusion about professional indemnity insurance and the inadequacy of compulsory professional indemnity insurance as a regulatory tool.
“There is an alternative to professional indemnity insurance, which has been proposed by the Personal Finance Society repeatedly over the last five years. This would involve a very small levy on funds under management in the UK, which would then fund compensation claims for investment clients.”
Connell said it would not result in any less compensation being paid to consumers, but it would mean that issues around volatility of professional indemnity insurance premiums and availability of adequate cover would no longer apply.
However, Penney said: “I am not sure how the FCA can control the insurance market. The PI issues are a symptom of the underlying cause.”
An FCA spokesperson said: “The circumstances around BSPS transfers were exceptional, and we know that many members lost out due to poor advice. We will carefully consider the recommendations of the report and respond to the committee.
“We’ve proposed a scheme which should see advice firms pay over £70mn of compensation to steelworkers. That’s in addition to over £70mn which has already been paid out. And people affected don’t have to wait for the scheme to be in place to make a complaint.
“We’ve also made sure that only firms with the right skills and experience can provide advice on pension transfers in future – over 700 firms have stopped doing so due to our work. We’ve also learnt real lessons for the future, including improving how we work with other regulators.”
sonia.rach@ft.com
What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know
