Recommendation 3

HM Government Not Addressed

The FCA should report to the committee 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. The FCA should review whether it has sufficient enforcement powers to deal with bad actors in the financial industry. The Treasury should consider how to address concerns about activity relevant to, but not within, the FCA’s remit, for example the actions of introducers in cases such as the BSPS. 3.1 The FCA is able to provide a high-level update on enforcement activity as set out below. 3.2 Enforcement activity related to BSPS is a high priority for the FCA. The FCA currently has c.30 ongoing investigations into firms and individuals relating wholly or partly to BSPS advice. Those investigations are at an advanced stage and five of them have entered either Stage 1 settlement discussions (i.e. a 28 day period within which the subject may agree to the FCA’s findings to resolve matters) or the Regulatory Decisions Committee (i.e. a Committee of the FCA Board which takes contested enforcement decisions on behalf of the FCA and operates separately from the rest of the organisation). If a matter is resolved in Stage 1, the FCA can proceed to publish information about it. If, following Stage 1, the subject contests the matter it moves into the Regulatory Decisions Committee or Upper Tribunal process. The timing of those processes is determined by those respective bodies. 3.3 Intervention work carried out by the FCA has also led to 48 firms withdrawing from the defined benefit pension transfer advice market. Interventions made by the FCA have required firms to cease all regulated activities relating to DB pension transfers and have stopped firms providing DB pension transfer advice to BSPS customers. 3.4 The FCA undertakes enforcement investigations where there is evidence that firms or individuals have engaged in serious misconduct. Under the Financial Services and Markets Act 2000 (FSMA), the FCA has an extensive range of disciplinary, criminal and civil powers to take action against those who have failed to meet the required standards. The FCA also keeps an open mind to the misconduct under investigation and, in addition to suitability of advice. Where the FCA sees evidence of other issues like asset stripping, it will take action where appropriate. 3.5 Each of the 30 investigations is complex and has required the analysis of significant volumes of evidence, compelled interviews with key witnesses and the review of customer files. The FCA recognises that the time it takes to properly review evidence and decide whether this provides the legal basis for further action is an understandable source of frustration for those affected, who expect to see action taken. 3.6 It is vital that the FCA investigates thoroughly and looks at all of the available evidence before making conclusions about what, if any, misconduct may have taken place, who is responsible and what sanction is appropriate. 3.7 It is also important for both legal and practical reasons that the FCA’s investigations remain confidential until complete. This is so we do not prejudice their outcome, which could make imposing sanctions far more difficult. 3.8 Further information on cases before the Upper Tribunal and Courts, and the FCA’s wider enforcement work are set out in a letter from the Chief Executive of the FCA to the Chair of the Committee, dated 28 September 2022. 3b: PAC recommendation: The Treasury should consider how to address concerns about activity relevant to, but not within, the FCA’s remit, for example the actions of introducers in cases such as the BSPS. 3.9 The government disagrees with the Committee’s recommendation. 3.10 It does, however, recognise the importance of the recommendation and welcomes the Committee’s view on the need for effective mechanisms to consider and, where appropriate, address concerns about activity that is not within the FCA's regulatory perimeter. The government has concluded that, on balance, the key mechanisms that currently exist are appropriate to address the types of concern highlighted by the Committee. These mechanisms are described below. 3.11 The FCA’s remit, also known as the regulatory perimeter, is the boundary between what the FCA does and does not regulate. Where the Treasury considers that an activity 17 should be regulated, it will typically engage with the FCA to bring those activities within the perimeter. The costs and benefits of bringing activities into the regulatory perimeter can be finely balanced, which is why the government is committed to regulating only where there is a clear case for doing so. 3.12 To support consumers’ understanding of the perimeter and explain the work being undertaken to address perimeter issues, the FCA has published an Annual Perimeter Report since 2019. Where there are co