Fourteenth Report - Investigation into the British Steel Pension Scheme

The Financial Conduct Authority has not been sufficiently proactive or timely in using its enforcement powers. To date, the FCA has issued one fine in response to the BSPS case, and while it has 30 more enforcement actions in place, … Read more The Financial Conduct Authority has not been sufficiently proactive or timely in using its enforcement powers. To date, the FCA has issued one fine in response to the BSPS case, and while it has 30 more enforcement actions in place, these have been ongoing for years without progress. It relied on ineffective interventions during its initial response such as issuing letters to advice firms reminding them of their obligations, and allowing firms to voluntarily withdraw from the market, rather than taking enforcement action. In doing so, the FCA failed to distinguish between rogue advisers and isolated instances of bad advice. Similarly, within the BSPS case there have been reports of phoenixing, in which rogue advice firms voluntarily leave the market only to repaper under different names; in response the FCA updated its guidance to raise firms’ awareness of the issue and is yet to take enforcement action. This highlights the FCA’s failure to deter bad actors from operating within the market. Recommendation: 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. Show less

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The current compensation arrangements do not always protect consumers, can create wider costs to firms and may not have the capacity to cope with future risks in the advice market. The standard approach to redress relies on consumers seeking compensation … Read more The current compensation arrangements do not always protect consumers, can create wider costs to firms and may not have the capacity to cope with future risks in the advice market. The standard approach to redress relies on consumers seeking compensation themselves, but only 25% of BSPS members who received unsuitable advice have raised claims with redress organisations. Similarly, despite the redress process being free to use, 72% of complaints to the Financial Ombudsman and 40% of claims to FSCS being made through third party representatives such as claims management companies and solicitors. This points to the general complexity of the redress system and the FCA’s failure to recognise the specific vulnerabilities of BSPS members that prevent them from seeking compensation directly. For redress arrangements to work effectively firms should have PII cover to afford the cost of compensation, however many advice firms are unable to access the insurance and, since 2018, 60% of firms have left the DB pension transfer market entirely. For firms that have entered insolvency, compensation is funded by an FSCS levy, which forces compliant firms to shoulder the cost of unsuitable advice. Given that the Financial Ombudsman is dealing with a significant backlog of complaints and the FSCS levy is forecast to increase to £406 million in 2022–23, the redress system may not have the capacity to respond to further instances of significant consumer detriment within financial services. Recommendation: The FCA, FOS and FSCS should write to the committee in 6 months to explain what they are doing to manage risks in the redress system for financial service. The FCA’s handling of the wider DB pension market should be reviewed as there could be thousands more cases of mis-selling which may be eligible 8 Investigation into the British Steel Pension Scheme for financial redress, given the significant amount of unsuitable advice seen across the sector. The review should include consideratio Show less

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The Financial Conduct Authority has consistently been behind the curve in responding to the catastrophic impact on British Steel Pension Scheme members. The FCA has been slow to respond at all stages of the BSPS case, for example it failed to take effective preventative action after identifying problems with the …

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The way that compensation has been provided in the British Steel Pension Scheme case has been slow and unfair. BSPS members face significant delays in receiving compensation. Complaints made to the Financial Ombudsman Service take on average eight months to be completed with many taking significantly longer. Many BSPS members …

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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 …

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On the basis of a report by the Comptroller and Auditor General, on 27 April 2022 we took evidence from the Financial Conduct Authority (FCA), the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) on the British Steel Pension Scheme (BSPS).2 The session included evidence provided by …

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The impact on members has been catastrophic, both financially and emotionally.15 Alongside losses caused by unsuitable advice to transfer, many members face ongoing advice charges to manage their remining pension savings.16 The FCA is unaware of the total financial loss experienced by members, it told us that it is conducting …

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The FCA failed to take swift and effective action at all stages of the BSPS case. It first became aware of the risks of unsuitable transfer advice in 2015 after the introduction of the Pensions Schemes Act but failed to take sufficient action to prevent consumers from being harmed. At …

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The former Chief Executive of the FCA told us that, as the BSPS case unfolded, the FCA did not have the data to tell it which firms had provided advice to members and found it difficult accessing this information when it needed it. This delayed its response and meant it …

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In response to the BSPS case, the FCA had to gather further evidence to understand the scale of the problem and in June 2018, out of a sample of 192 files, it found that 47% of transfer recommendations were unsuitable.25 In order to take action against regulatory non-compliance, the FCA …

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The FCA implemented ineffective regulatory interventions in its initial response to the BSPS case. For example, the FCA issued letters to advice firms reminding them of their obligations to provide advice that is in consumers’ best interests, showing its naivety in failing to understand the behaviour and motivations of unscrupulous …

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To date, the FCA has only issued one fine in response to the BSPS case.36 It told us that it is working on a further 30 enforcement cases, but despite working as “swiftly 22 Qq 37, 38 (27 April) 23 Qq 37, 38 (27 April) 24 Qq 72–75 (27 April) …

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Alongside the unsuitable advice provided by firms, there have been other issues of non-compliance within the BSPS case, including unregulated introducers and phoenixing. The FCA has identified that in 30% of BSPS cases members were introduced to their adviser by third parties, and whilst some introducers are authorised and regulated …

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The FCA oversees the consumer redress process which intends to put consumers back into the financial position they would have been in if unsuitable advice had not been given.45 Consumers must raise complaints directly with advice firms or the FOS within six years of receiving unsuitable advice. However, BSPS members …

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The FCA provides guidance on how compensation should be calculated and sets the rules for how compensation is delivered. Calculations use complex financial assumptions which are updated every three months in accordance with market performance, and therefore are subject to changes in the market which causes significant variation in the …

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Many BSPS members have not received the full amount of compensation owed to them due their advisers being unable to pay compensation. The FCA imposes limits on the compensation awarded by both FOS and FSCS, and the FSCS’s compensation limits are significantly lower.52 This unfairly impacts those whose advice firms …

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The FCA and redress organisations worked to engage with and encourage BSPS members to seek compensation through direct letters and in-person events.54 Despite these efforts only 25% of all members who received unsuitable advice have raised claims with redress organisations, and the remaining 75% of members who may be eligible …

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The FCA’s response to the BSPS case highlights wider issues within its regulatory approach. Alongside the estimated 369 firms and advisers that provided unsuitable advice to BSPS members, the FCA found that 17% of DB transfer advice was unsuitable within the wider market. This is a significant proportion of non-compliance, …

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There is a fundamental misalignment between legislation and regulation of the DB pensions advice market, which has caused confusion over the suitability of transfer advice.60 The 2015 Pensions Schemes Act introduced by HM Treasury was intended to provide greater freedom and flexibility for consumers to manage their pensions, allowing DB …

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In direct response to the 2015 Act, the FCA announced a new starting position for advisers who should assume that in most cases a transfer will be unsuitable.63 Subsequently in 2017, the FCA sought to align itself with the government’s underlying philosophy of choice within pensions policy and consulted on …

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There are also wider uncertainties within the advice market, including the provision of Professional Indemnity Insurance (PII). PIMFA told us that the availability of PII has become severely limited because insurers are struggling to accurately predict the risk of 58 C&AG’s Report, para 9, 2.5 59 Qq 83, 86 (27 …

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The standard complaints-based approach to redress, which relies on consumers seeking compensation themselves, has proved ineffective in the BSPS case. Only 25% of members who received unsuitable advice have raised a claim with redress organisations.69 The FCA told us that it was surprised that more members hadn’t raised a complaint …

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Redress arrangements also impact on the wider pension’s advice market. Firms should have PII cover to afford the cost of compensation, and whilst firms had cover when they provided advice, many are unable to access insurance for subsequent years.72 This leads to firms being unable to pay compensation and forced …

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