FCA throws out complaint about its handling of British Steel scandal

In a letter, seen by FT Adviser, the FCA responded to a complaint to its chief executive Nikhil Rathi.

The complaint had been brought on behalf of 354 members of the British Steel Pension Scheme by law firm Clarke Willmot back in January 2023.

As part of the complaint, it was alleged that the FCA had been “consistently behind the curve” in responding to the “catastrophic impact on members of the BSPS”. 

The complainants said the FCA became aware of the issues surrounding BSPS transfers in at least late 2017 during the time approximately 44,000 steelworkers were being asked to make life-changing decisions about their pension. 

The complainants said it was “inexcusable” that the FCA was not more prepared for this potential scandal. 

They also said the FCA failed to take steps to protect consumers.

This accusation included not taking steps to preserve advisers' professional indemnity insurance, which would have been available to consumers had the firms notified relevant parties of the existence of any complaints. 

They also said the FCA did not prevent firms who had been identified as a risk to the BSPS members - and which gave up their DB transfer permissions as a result of investigation by the FCA - from passing on their clients to other unsuitable advisers.

The complainants also believed the FCA was not “sufficiently proactive or timely in using its enforcement powers”. 

Given this short timescale, and the fact that the FCA did not have timely knowledge, the FCA could not have reasonably prevented the harm from occurringThe FCA

Finally they said the FCA’s actions had resulted in inconsistent outcomes for consumers entitled to compensation. 

They therefore asked the FCA to make ex-gratia payments to those affected and to pay compensation for losses suffered where you believe that the FCA was the primary cause of the loss. 

But the FCA said, following a detailed investigation, it has not upheld these allegations.

However, it did agree to pay each person £150 to acknowledge how long it has taken to respond.

The FCA’s view

With regards to the allegations that it was “behind the curve’, the regulator said it had expended significant time and resource in relation to pensions advice following the introduction of pension freedoms in 2015.

It added that it was not involved in the restructure of the BSPS and, without a clear information sharing arrangement with TPR, relied on intelligence from other sources. 

It stated: “Further, as highlighted by the various independent reviews, the circumstances were unique and the timescale was very short for members to determine which option to choose. 

“Given this short timescale, and the fact that the FCA did not have timely knowledge, the FCA could not have reasonably prevented the harm from occurring.”

It said once it became aware of the rate of unsuitable advice, particularly in the case of BSPS, it consulted on a redress scheme.

It said: ‘We note that there are arguments that the FCA could have identified earlier than April 2021 that the complaints-led approach was not working to the extent needed (particularly because of the relatively low number of complaints) and responded by diverting more resource to gather the high level of evidence required to enable it to implement a statutory redress scheme. 

We note that there are arguments that the FCA could have identified earlier than April 2021 that the complaints-led approach was not workingThe FCA

“However, the complaints-led approach, combined with the joint supervisory and enforcement work in Phase 4, was considered the quickest and most efficient way for BSPS members to access redress, especially given the time and cost required to gather the high level of evidence required to meet the tests under s.404 and to implement a statutory redress scheme.”

The City watchdog also did not agreed that it failed to take steps to secure an appropriate degree of protection for consumers.

PII controls

It said the FCA cannot control the PII market by forcing insurers to provide cover or to do so at reduced cost.

It explained that it was likely that a volume of complaints at an earlier stage would have expedited the changes and the hardening of the PII market sooner. 

“This would have essentially limited cover for DB pension transfers, particularly for advice relating to BSPS, as well as premiums becoming prohibitively expensive, rendering firms unable to afford cover,” the FCA added.

The regulator also believed its enforcement action was timely saying that it had to carry out “significant work” to build an evidence base to be able to open more than 30 enforcement investigations against firms and individuals.

The FCA could have identified earlier than April 2021 that the complaints-led approach was not working to the extent needed.FCA response

With regards to compensation, the FCA said redress calculations are complex and individual and therefore result in people receiving different sums of money.

“This difference is a result of individual circumstances, when the calculation is made, market fluctuations, changes in the future expected economic environment (future investment returns, inflation rates), changes in mortality rates, the changing cost of annuities (which in turn will depend on the current and expected future economic environment and other factors) and differences in the historical investment performance of the DC schemes into which the transfer values from the BSPS were paid,” the FCA said.

The complainants are now able to pass their complaint on to the Complaints Commissioner.

In 2023, two Labour MPs also wrote to the financial regulator’s complaints commissioner about the Financial Conduct Authority’s performance, specifically around the handling of the British Steel Pension Scheme.

amy.austin@ft.com