Source · Select Committees · Public Accounts Committee
Recommendation 5
5
Seven years after the Pensions Schemes Act, regulated bodies are still not clear on the...
Conclusion
Seven years after the Pensions Schemes Act, regulated bodies are still not clear on the Financial Conduct Authority’s expectations for consumer protection. The 2015 Pensions Schemes Act provided consumers with greater flexibility for Investigation into the British Steel Pension Scheme 7 accessing their pension savings and allowed DB pension scheme members the opportunity to transfer out to a DC scheme to access their savings. The FCA recognised the potential harm these reforms could cause some consumers and was concerned with the speed at which they were introduced. In response, the FCA provided guidance that advisers should assume that, in most cases, a transfer will be unsuitable, creating confusion among advice firms. Adding to this confusion, the FCA consulted on removing its starting position in 2017, despite finding a 17% unsuitability rate for DB transfer advice across the market. Such contradictions and misalignment between the legislation and regulation of transfer advice contributed to the failings of advisers within the BSPS case. There are also uncertainties around the provision of Professional Indemnity Insurance (PII), as the availability of cover has become constrained by limited providers and high costs. The FCA is yet to define its expectations for the PII industry or fully consider its effects on the stability of pension transfer advice market. The FCA has also failed to clarify its regulatory approach to other areas emerging areas of consumer risk, such as crypto asset investments. Recommendation: The FCA should be more proactive and consumer-focused in its engagement with stakeholders. It should have a better mechanism for responding to consumer harms and collect more evidence on a regular basis to pick up on issues that are being raised, especially from emerging risks in financial markets. The FCA must also review how effective the Financial Services Consumer Panel is at consumer protection and how it influences policy debates within the FCA fro
Government Response
Not Addressed
HM Government
Not Addressed
The FCA should be more proactive and consumer- focused in its engagement with stakeholders. It should have a better mechanism for responding to consumer harms and collect more evidence on a regular basis to pick up on issues that are being raised, especially from emerging risks in financial markets. 5.1 The FCA agrees with the Committee’s recommendation. First part of the recommendation: Implemented 5.2 The FCA’s Business Plan sets out its commitments for tackling conduct that can cause serious harm and how the organisation is joining up its tools to act efficiently, effectively, and consistently. This is exemplified by how the regulator is responding to the digitisation of financial services. 5.3 On BSPS, working in partnership with the FOS and the FSCS, the FCA has engaged extensively with former BSPS members over a significant period of time. The FCA sent direct mailings in 2018, 2019 and 2020, ran local events in 2019 and 2021, and communicated through trusted intermediaries (including steelworkers, MPs and unions), to raise awareness of their right to complain/claim. It has also provided tools, such as the FCA’s advice checker, to make it easier to do so. This engagement has been constructive. For example, 272 former BSPS members attended face-to-face events in South Wales and Scunthorpe in late 2021. 86% of attendees surveyed said they were now clearer about their next steps and following the events there was an uplift in FOS complaints. In the summer of 2022, the FCA has discussed its redress consultation directly with over 50 former BSPS members and over 200 firms. 5.4 The FCA regularly engages with industry to understand developments across the financial services industry and any emerging risks. It values its relationships with trade bodies, firms, consultants, consumer organisations and other stakeholders, who provide market insights and help us identify potential problems. We also monitor a wide range of data sources 20 that provide insights on firms and consumer behavior, helping in our identification of emerging risks and themes. Subsequently these risks are triaged, prioritised, and fed in to forward looking work plans. The significant investment the FCA is making to become a data-led regulator set out above will assist its detection of and response to emerging risk across all financial markets. 5.5 On consumer engagement, the FCA uses a range of methods to engage with consumers and understand their experience of financial services, their needs and the potential for harm within the wider economic context. For example, the FCA’s consumer partnerships network draws in insight which informs its policy development and builds relationships and understanding with consumer groups. The FCA’s consumer market research, including the Financial Lives Survey (a nationally representative survey of UK consumers) also helps the FCA to identify harms and improve consumer outcomes. Financial Lives provides data on the characteristics of vulnerability including poor health, a life events, low resilience or low capability. 5.6 Further information on how this recommendation has been implemented is contained within letter from the Chief Executive of the FCA to the Chair of the Committee, dated 28 September 2022. 5b: PAC recommendation: The FCA must also review how effective the Financial Services Consumer Panel is at consumer protection and how it influences policy debates within the FCA from a consumer angle. 5.7 The FCA considers this recommendation is best addressed through the Treasury’s work on the Future Regulatory Framework and the work of the panels is considered in the legislation now before Parliament. 5.8 The FCA would like to refer the Committee to our letter of 18 May 2022, which explains the remit of the Consumer Panel. The Panel’s role is advisory and focused on matters of policy or supervision at the general level. Statute does not provide grounds for the Panel to act on behalf of individuals with a complaint, either against the FCA or a firm it regulates, or those pressing for compensation or redress. 5.9 Following the announcement of Pension Freedoms, the Panel responded to HM Treasury’s consultation, the Work and Pensions Committee and the FCA’s consultation paper CP 15/30 on pension reforms. The Panel provided extensive input and challenge at each stage of the Retirement Outcomes Review, and subsequently identified a range of regulatory remedies to protect consumers from poor outcomes, improve consumer engagement and promote competition. 5.10 On DB pension transfer advice, the Panel provided responses to various FCA consultations and advocated for and supported a ban on the practice of contingent charging. The Panel has also had discussions more recently with the FCA about the proposed redress scheme and to understand and comment on more fully the nature of the issues with BSPS.