British Steel Oct 24 2022

FCA reiterates clients of failed firms will not be in BSPS redress scheme

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
FCA reiterates clients of failed firms will not be in BSPS redress scheme

The Financial Conduct Authority has emphasised that British Steel Pension Scheme members who were clients of now failed firms will not be included in the proposed redress scheme. 

In a letter to the FCA dated August 1, Work and Pensions committee chair Stephen Timms asked the regulator about BSPS members who were proactive in taking action and received capped compensation from the Financial Services Compensation Scheme.

Timms said those who received this compensation may not feel that “the harm they suffered has been put right.” 

It asked the regulator if it would exclude people who have already received FSCS compensation from the BSPS redress scheme, and what will happen to claims in the pipeline. 

In response to Timms, FCA executive director, consumer and competition Sheldon Mills said under the existing proposal, customers of firms that have failed - who may or may not have already submitted a claim to FSCS - will not be included in the scheme. 

“This includes people who have already received compensation from the FSCS,” he wrote. “Our proposal stipulates that authorised firms would need to follow detailed rules when assessing suitability of advice and, where appropriate, calculating and paying redress. 

“Customers of firms that have failed will not be included in the redress scheme because there is no longer an authorised firm to carry out the scheme steps and pay redress.”

In the letter, dated to September 29, Mills said customers of firms that go out of business before the scheme starts can make a claim to the FSCS, if they have not already done so.

 We are currently considering next steps, including whether it might be appropriate to reconsider whether the current limits continue to provide an appropriate level of consumer protection. Sheldon Mills, FCA

If a scheme is implemented, for any firms that go out of business after the scheme starts, where possible FSCS will proactively assess claims that are within the scope of the scheme, without the customers needing to make a claim. 

Mills said the FSCS will also calculate redress in line with the scheme rules and will pay compensation up to the relevant limit. 

“The FSCS compensation limits therefore apply to customers of firms that have failed after and before any consumer redress scheme is implemented (as well as customers who have already received compensation from the FSCS)”, he said.

“The FSCS’s operating costs and compensation payments are funded by levies on financial services firms. FSCS compensation limits were last reviewed between 2016 and 2018. 

“In light of feedback received, we increased the limit from £50,000 to £85,000 for certain categories of claim for firms declared in default by the FSCS from April 2019 onwards. This limit was considered to represent an appropriate balance between consumer protection and the cost to industry levy payers, which are ultimately passed on to consumers.”

Last December, the FCA published the compensation framework review discussion paper in which it outlined current compensation limits are set at an adequate level to cover a reasonable proportion of customers’ claims.

 The issue of means-tested benefits does not appear to be specifically addressed.  Stephen Timms, Work and Pensions Committee

However, in this letter, he stated the FCA is interested in hearing views from stakeholders on whether changes should be made. 

“We are currently considering next steps, including whether it might be appropriate to reconsider whether the current limits continue to provide an appropriate level of consumer protection,” Mills said.

“If, following a public consultation, a decision was made to increase the limits, it is likely that the increased limit would apply to customers of firms declared in default from a date in the future, rather than to consumers who had already received compensation. 

“We will publish a feedback statement later this year.”

Lump sum payments 

In August, the FCA published a consultation paper on calculating redress for non-compliant pension transfer advice in which the FCA said reinstatement of redress into the original defined benefit scheme would give “absolute certainty” that the consumer has been put back into the position they would have been in. 

It said redress on bad DB transfer advice should be paid into the consumer’s personal pension to ensure it is used to make up pension shortfalls.

However, at the time, members of the industry have raised concerns around how the scheme would impact taxation.

In Timm’s letter to the regulator, he also raised the question about the potential impact of lump sum payments, particularly on people in receipt of means-tested benefits. 

“The redress guidance states that a lump sum payment should be adjusted to take account of the individual’s tax position and their wider circumstances so that they are not disadvantaged by receiving the redress payment,” Timms wrote. 

“The issue of means-tested benefits does not appear to be specifically addressed.”

According to Timms, the FCA website states for wider circumstances, firms should: check if the consumer receives means tested benefit, check if any payment would change the consumer’s eligibility for means tested benefits and adjust the redress payment accordingly so that the consumer is not disadvantaged by the payment.

He urged the FCA to explain what this means in practice and how a lump sum payment should be adjusted to ensure that someone on means-tested benefits is not disadvantaged.

The FCA said redress calculation rules for the BSPS redress scheme would be based on its general methodology. 

Mills said: “While we have proposed some differences for cases covered by the BSPS redress scheme, the expectation that redress payments are adjusted to take account of means-tested benefit entitlements will apply to all cases.

“It is our understanding that such entitlements are only likely to be affected by cash lump sum payments. So, our proposal that as much redress as possible should be paid into the consumer’s defined contribution pension by augmentation should reduce the scope for their entitlements to be affected.” 

Where redress is paid by cash lump sum directly to the consumer - because augmentation is not possible - the FCA said it remains the position that firms ensure consumers do not suffer a reduction in income because of the redress payment. 

The proposed rules and guidance do not specify how cash lump sum redress payments should be adjusted to take account of means-tested benefit entitlements. 

“We understand that compensation protection trusts (CPTs) can be used in these circumstances, with redress that is paid into the CPT being available for investment,” he said.  

“We will continue to consider whether more specific guidance could be provided to firms on this matter.”

Last month, FTAdviser reported that the FCA could face the risk of a judicial review over concerns related to the calculation of redress for BSPS members. 

In a legal letter to the FCA from Hausfield & Co, the firm said it had “deep concerns” that the mis-selling suffered by BSPS members is being compounded because redress is being awarded by the FCA, via the FSCS and Fos, in “an arbitrary and/or unfair manner”. 

The issues related to the calculation of the redress were linked specifically to three key areas which were: financial adviser charges, early drawdown and inflation.

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