British Steel Jul 21 2022

FCA had ‘inadequate oversight’ of advisers targeting BSPS members

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FCA had ‘inadequate oversight’ of advisers targeting BSPS members

The Financial Conduct Authority had “inadequate oversight" of firms involved in the British Steel Pension Scheme transfer scandal and was “consistently behind the curve” when responding to issue, MPs have claimed.

A report into the handling of the BSPS saga by the Public Accounts Committee, published this morning (July 21), looked at how the regulator handled the issue, the proposed redress scheme and how prepared the FCA is for future risks.

The committee found the FCA was “consistently behind the curve” and despite being aware of the potential risks caused by pension freedoms being introduced in 2015 it “failed to take preventative action to protect consumers”.   

The group of MPs said that by 2017 when the BSPS was well underway, the FCA still “did not know” what was happening in the DB market and it had “inadequate oversight of the firms involved”, only later finding out that “47 per cent of cases the advice provided was unsuitable”.  

The committee also pointed to wider problems in the FCA’s authorisation and oversight of small firms, with which the FCA acknowledged there were clear issues.

The MPs said: “The FCA’s lack of access to timely data and insight into the DB pension transfer market indicates that the regulator was slow to understand the risks to pension members and how to  effectively monitor these. 

“This was made worse by the FCA’s focus on regulation of big firms which left smaller firms out of the spotlight, as the former chief executive of the FCA admitted.”

It accused the FCA of failing to protect BSPS members from “unscrupulous financial advisers” who were incentivised by existing fee structures and regulation to provide unsuitable advice that led to around 7,800 steelworkers losing an average £82,600 in life savings, with some losing up to £489,000. 

Redress

The committee argued that the FCA’s response was “focussed on gathering further evidence and issuing letters to firms, rather than enforcing against non-compliance, to date it has issued only one fine".

The Pac said the complaints-based redress process adopted by the FCA proved “ineffective” for BSPS members, with only 25 per cent of BSPS members raising complaints. 

Many have not been compensated fully, and for those whose advice firms have entered insolvency, £21mn in compensation has been lost due to financial limits, it explained.

In March, the FCA set out plans to deliver £71.2mn in compensation to BSPS members who received unsuitable advice to transfer out of their pension.

The regulator estimated that 1,400 steelworkers would receive £71.2m in redress under the scheme. 

But the Pac said there are already concerns that potentially thousands more cases of mis-selling will push the FCA’s estimated £71.2mn cost of compensation for those who received bad advice significantly higher.

This report shows how badly they were treated, and where the FCA failed to support them in their hour of needNick Smith, Labour MP

The committee also pointed to wider problems in the FCA’s authorisation and oversight of small firms, its access to data and intelligence to identify problems and its use of enforcement powers to respond to them quickly.  

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.”

Committee lead member and Labour MP Nick Smith said: “Steelworker pensioners came to me four years ago telling me they had been ripped-off and were worried that no one was there to help.

“This report shows how badly they were treated, and where the FCA failed to support them in their hour of need.”

Smith said the FCA “failed to get a grip” on this scandal at the outset, was slow to respond in the aftermath and not nearly enough has been done to hold those responsible to account.

“Working people in this country need a regulator that protects them and is able to take strong action against the financial sharks that would target them,” he added. 

Recommendations for the FCA 

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. 

FTAdviser understands that the pension freedoms were introduced very quickly in 2015 which meant that 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.

The FCA has since taken action to improve the quality of advice on DB pension transfers and along with The Pensions Regulator, has implemented the recommendations made by the Rooke’s review in 2018, including improvements to how it shares information. 

In January 2019, the FCA, TPR, and the Pensions Advisory Service (now Maps) developed a joint protocol to enable early intervention in DB transfer cases. 

This has provided the FCA with better insight into DB pension transfers and risks to consumers in the market.

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. 

In considering the implementation of a consumer redress scheme for BSPS members, the PAC said the FCA should consider how further redress mechanisms can be implemented more quickly and provide fair compensation. 

It should also consider how to resolve differences in the levels of compensation received by BSPS members to date, and how this compares to the amount that other members will receive from the proposed FCA redress scheme. 

The committee said the FCA should be more proactive and consumer-focused in its engagement with stakeholders and have a better mechanism for responding to consumer harms.

It said the FCA should collect more evidence on a regular basis to pick up on issues that are being raised, especially from emerging risks in financial markets, and review how effective the Financial Services Consumer Panel is at consumer protection.

In addition to this, the committee also said the FCA, Financial Ombudsman Service and the Financial Services Compensation Scheme should write in 6 months to explain what they are doing to manage risks in the redress system for financial service. 

“The FCA’s handling of the wider DB pension market should be reviewed as there could be thousands more cases of mis-selling which may be eligible for financial redress, given the significant amount of unsuitable advice seen across the sector,” it said.

The review should include consideration of solutions in circumstances in which an industry-wide levy is insufficient to pay out compensation to those who are eligible. 

amy.austin@ft.com, sonia.rach@ft.com