MP calls for greater regulatory powers to tackle 'pension sharks'

Speaking in the House of Commons, Smith said he was glad to see the recent introduction of the bill but said it should give the FCA more powers "to deal with pension sharks".

Smith said. “The Financial Conduct Authority needs to look across our country, as well as the City of London, therefore can I ask the minister to make doubly sure that this bill has the strongest possible provisions for consumers and that the regulatory culture at the FCA is fit for purpose.”

Smith, who is MP for Bleanau Gwent in south Wales where many have been affected by the British Steel Pension Scheme scandal, argued “much more” needed to be done.

“Unfortunately, I've lost confidence in the main regulator, the FCA,” he said. “Their oversight of the British Steel Pension scandal was plain hopeless. 

“I saw the stress and grief of steelworker pensioner constituents who had been ripped off and my own experience as a member of the public accounts committee chair has shown how useless the FCA can be.”

They failed to regulate a marketplace rigged against the steelworkers.Nick Smith, MP for Blaenau Gwent

The Labour MP added: “A recent public accounts committee report found that the FCA failed to protect BSPS members from unscrupulous financial advisors who were financially incentivised to provide unsuitable advice and the regulator was “behind the curve in its response”.

The financial services and markets bill was announced during the Queen's Speech earlier this year and was introduced to parliament in July.

It aims to revoke EU financial services regulations and replace them with new rules which are "designed for the UK". It will also introduce additional protections for those investing or using financial products, to make it safer and support the victims of scams.

Controversial “call-in” powers, which would allow the government to intervene in financial regulation in the interest of the public, were not included in the bill and are said to be under consideration.

Smith said HM Treasury should have increased powers to direct the FCA to make, review and enforce new rules as and when the need arises, saying it “does need to jump in when necessary”.

“We need a fit-for-purpose FCA that robustly defends its consumers at the outset,” he added. “It needs to hold bad actors to account from the get go.

“Therefore, [...] I believe that consumer protection should be embedded much better in chapter three of the bill as a key accountability of the regulator. 

“That is why I hope to see amendments to this bill that mandate a much sharper focus on consumer protection, with statutory panels that centre on the consumer.”

In July, a report into the handling of the BSPS saga by the public accounts committee looked at how the regulator handled the issue, the proposed redress scheme and how prepared the FCA is for future risks.

It said the FCA had “inadequate oversight" of firms involved in the BSPS transfer scandal and was “consistently behind the curve” when responding to the issue.

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”.   

Speaking in the House of Commons, Smith said: “Despite being duty bound to ensure consumers were given quality financial advice, the FCA displayed poor oversight of the adviser marketplace. 

“They consistently failed to act even though they were aware of the risks to pensioners transferring out of a defined benefit scheme. They failed to regulate a marketplace rigged against the steelworkers.”

Smith explained that despite having powers to respond to the “thieving and poor advice behaviour”, the FCA has issued just one fine in relation to the BSPS case. 

“Whilst I welcome FCA’s efforts to improve its consumer facing work in recent months, I'm not convinced that the proposed framework will ensure consumers are properly protected in the future,” he said. 

However, an FCA spokesperson said: “The FCA has a justified reputation for taking action, including the first criminal prosecution of a bank for anti-money laundering failures, over £1bn secured for small businesses with business interruption cover and a new consumer duty that will raise standards across the industry.

“Where there have been things we could have done better, we commissioned independent reviews to ensure we learned the lessons.

“The recommendations of those reports have been included in a significant programme of change underway at the FCA which is designed to ensure we have the resources, technology and approach needed to be an innovative, assertive and adaptive regulator.”

FTAdviser understands 46 per cent of transfers from the BSPS were unsuitable, and came from advice given by hundreds of firms. 

Poor advice given in relation to defined benefit pension schemes is the highest driver for redress from the Financial Services Compensation Scheme and the regulator has put around 30 individuals or firms into enforcement in relation to DB-DC transfers.  

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.

Last 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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