FCA consults on British Steel redress scheme
The FCA intends to open consultation on an industry wide redress scheme covering British Steel Pension transfers. This is perhaps the only option left for the regulator, but a redress scheme will heap further pressure on an area of the advice industry that is already under fire.
After flitting back and forth on the idea, the FCA now intends to consult on a redress scheme for members who transferred from the British Steel Pension Scheme ("BSPS"). In a 'Dear CEO' letter dated 22 December, the FCA highlights the high levels of unsuitable advice seen involving BSPS and states that, under the proposed scheme, firms will need to review all such advice and pay compensation if the advice was unsuitable. The proposed redress scheme would be implemented under s.404 of FSMA, a power that has not been invoked for nine years. Any scheme run under s.404 would specifically require a legal liability to be established before redress was payable. It seems that we can expect a consultation paper in March 2022.
No doubt in anticipation of redress being required, the FCA's letter refers to firms' need to maintain adequate financial resources under Principle 4 and suggests firms may want to consider the effect on solvency that any liability to BSPS transfers may have. Firms are then implored to retain assets and not to dispose of these other than in the ordinary course of business. Firms are also told not to seek to cancel authorisations without first consulting with the FCA.
The imposition of a redress scheme would be a draconian measure. The only comfort comes from the fact that this would only address transfers completed during 1 March 2017 – 31 March 2018, being the time in which members had the option of choosing to retain their BSPS pension (which would ultimately fall to the PPF) or transferring to the proposed new scheme on offer (which became BSPS2) or transferring to a private pension. However, this is perhaps the only logical next step given that the FCA has already written to transferred BSPS members twice and held clinics encouraging people to complain about the advice received. The FCA itself came into criticism from the National Audit Office for its handling of BSPS transfers and this seems to have led them towards an industry wide redress scheme after apparently having gone cold on the idea earlier this year, saying more information was required.
A dispassionate observer might be of the view that former BSPS members have had ample opportunity to review the advice received, given the high profile of BSPS transfers in recent years. One might even conclude that the members who have not complained are happy with the outcome and perhaps even enjoying retirement. This is apparently not enough for the FCA who, having done all they can to encourage complaints now seem to want to further punish the industry. Their concern perhaps comes from the fact that around 8,000 members transferred from BSPS but only a small proportion of these members have complained, with only somewhere between 300 and 400 complaints having been made to FOS (which obviously does not include complaints to firms that did not progress to the Ombudsman or direct to the FSCS). Nevertheless, this highlights the scale of the potential scheme, with thousands of instances of advice to be reviewed. This could create logistical headaches for the FCA, which is already involved with enforcement action against around 40 firms in relation to British Steel advice. Beyond this, one wonders if the FCA has even considered what level of funds may be available for redress in circumstances where many firms have already stopped giving pension transfer advice and have limited PI cover available. Perhaps a better alternative would be to allow firms to use resources to deal with complaints that are actually received, rather than stirring up the potential for redress payments in circumstances where the deck is stacked against the advisor when looking at suitability.
The consultation should open in March 2022 with a decision to be made once this has closed – watch this space for any further developments.