British Steel Mar 31 2022

FCA unveils £71mn British Steel redress scheme

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FCA unveils £71mn British Steel redress scheme

In a consultation paper published today (March 31), the FCA estimated that 1,400 steelworkers will receive £71.2m in redress under the scheme. 

Redress represents a transfer to BSPS members who received unsuitable pension transfer advice from the firms that provided that advice, to the extent that they remain in business. 

In today’s paper, the FCA said the proposed scheme will cover those who transferred out between May 26, 2016 and March 29, 2018. 

Consumers will be excluded from the scheme if they have already received redress, have referred their complaint to the Financial Ombudsman Service, have received a final outcome from a suitability assessment on their case, are an ‘insistent client’ and if they received advice outside the relevant period.

The FCA said some BSPS members might have received transfer advice outside the relevant period that is covered by the proposed scheme and that advice is not included in the scope.

Customers who received advice outside the relevant period can make complaints in the usual way if they think the advice they were given might have been unsuitable.  

The FCA has found that almost half (46 per cent) of the advice it reviewed relating to BSPS was unsuitable.

The City watchdog first announced its plans for a redress scheme in December and set out that it will take strong action against impacted firms who try to avoid their responsibilities to pay compensation.

If the scheme goes ahead, the FCA will publish rules setting out how advisers must determine whether they gave unsuitable advice and whether they must pay compensation. 

Independent checks and monitoring will be put in place to ensure that firms comply with the rules..

The scheme is expected to be in place by early 2023, with individuals starting to receive compensation from late 2023.

The regulator said for those individuals who received advice from an insolvent business or one which no longer exists, the Financial Services Compensation Scheme will consider claims.

The City watchdog emphasised that consumers can make a complaint now rather than waiting for the outcome of the consultation. 

Sheldon Mills, executive director for consumers and competition at the FCA, said: “The circumstances around British Steel Pension Scheme transfers were exceptional, with former members receiving significantly higher levels of unsuitable advice compared with other cases. 

“We want individuals who lost out financially after receiving unsuitable advice to receive compensation through our scheme.”

How will the scheme work?

The FCA said the scheme will require firms who gave advice to certain BSPS members to transfer their safeguarded benefits to a DC scheme to assess whether the advice was suitable, and to pay appropriate redress where the advice was not suitable.

The steps that the proposed scheme will require firms to take can be grouped into 3 main phases: pre-scheme checks, suitability assessments and assessment outcomes. 

The pre-scheme check will require a firm to identify and write to all consumers who transferred out after a personal recommendation.

Following this, a firm will move on to the suitability section where it will review the available evidence and information.

It also requires firms to consider a list of examples that are indicators that advice is likely to have been unsuitable. 

The firm must conclude, taking into account all of the available evidence and the presence of any examples indicating unsuitable advice, whether it complied with the suitability requirements. 

The firm will then move on to the assessment outcome to assess whether the advice was suitable and the redress to be paid if so.

The FCA said steelworkers generally supported the regulator’s proposals but raised concerns about firms ‘marking their own homework’ by assessing their own advice. 

They believe that firms will be incentivised to assess the advice as suitable, even if it is not. 

Steelworkers wanted as many people as possible to be included in the scheme and raised concerns that, currently, people might be getting inconsistent outcomes or redress amounts. 

Trade bodies were concerned about redress schemes being used more widely for DB transfer cases, the impact on FSCS, and how this work links to the FCA’s separate review of the redress calculation methodology for pension transfer cases generally. 

Stakeholders also asked about the risk that firms would wrongly say that they advised consumers not to transfer but consumers had insisted on doing so.

To ensure consumers receive outcomes from the scheme in a reasonable timeframe, the FCA said it is proposing deadlines by which firms must complete the steps in that phase. 

If firms have reason to believe they will be unable to complete a phase by the deadline, firms can consider applying for a waiver. 

The BSPS case

During 2017, BSPS members were asked to make decisions about their pensions as part of a restructure of the scheme.

About 8,000 members transferred out of the scheme, with transfers collectively worth about £2.8bn.

But concerns about the suitability of the transfers were soon raised, leading to an intervention from the Financial Conduct Authority that resulted in a number of advice firms – key players in the debacle – stopping their transfer advice service, while others went out of business.

The debacle created a mountain of liabilities, which lawyers believe could end up costing the industry up to £300m.

In September, the FCA and FSCS travelled to Swansea to meet steelworkers who could be due compensation but were met with mixed feelings, with some showing no interest while others claimed they were unable to book a place.

The City watchdog also travelled to Swansea in November to meet steelworkers about bringing possible claims against their adviser.

Earlier this year, the FSCS said it had paid out more than £36.5m in compensation to BSPS members, as of January 25.

sonia.rach@ft.com

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