FCA consultation on British Steel redress scheme published
The FCA has now published its consultation paper on the proposed redress scheme for British Steel Pension transfers under s.404 of FSMA. The scope of this is wider than anticipated and the proposals contain some surprises around the lack of an opt-in process and potential involvement of FOS.
The FCA has published its long awaited consultation paper on the proposed industry wide past business review of transfers from the British Steel Pension Scheme (BSPS) under s.404 of FSMA. The paper calls BSPS a 'highly exceptional case' and notes that 46% of transfers reviewed by the FCA were unsuitable. This coincides with the sending of a further 'Dear CEO' letter to advice firms, reiterating the need to maintain adequate financial resources and retain assets for the proposed redress scheme.
The consultation paper makes for interesting reading, with the FCA noting that members will be eligible to have their advice reviewed without needing to make a complaint or opt-in. Use of an opt-in process has long been an established element of past business reviews and this will no doubt raise some eyebrows. In considering the use of an opt-in process, the FCA notes that this could reduce the number of consumers receiving redress from 1,400 to 1,200, meaning 14% of members who would otherwise be due compensation would 'miss out'. The FCA also raises concerns about firms trying to dissuade members from opting in. It is also proposed that the FSCS will review transfers advised on by firms who are insolvent or no longer exist.
The sums at stake are potentially significant, with the review covering around 4,000 transfers and the FCA estimating that 1,400 members will receive £71.2 million in redress under the scheme. This is based on an assumption that 35% of the in-scope transfers will receive redress, with firms themselves paying £31.2 million, the FSCS contributing £20.6 million and £19.4 million anticipated to be paid by PI Insurers.
In a change from the initial proposal, the review may now cover advice given between 26 May 2016 and 29 March 2018. The FCA had originally proposed that the review would cover advice given between 1 March 2017 to 31 March 2018, largely covering the Time to Choose exercise when steelworkers had the option of remaining in BSPS (which fell to the PPF), transferring their pension or opting to transfer to BSPS2. It was this period in particular that the FCA had concerns about, and the 46% failure rate was based on transfers that took place during this period. Whether or not the review will cover the additional period from 26 May 2016 will turn on whether the FCA's further review of transfers from May 2016 raises concerns sufficient that the legal test for implementing a s.404 scheme is met. As part of the FCA's proposed pre-scheme checks, firms will be obliged to write to all members advised to transfer, telling those falling out of scope that they have the right to complain to FOS. The FCA seems alert to the fact that members who transferred in 2016 may shortly fall outside of the six year timeframe in which to bring a complaint, and the proposed correspondence intends to address this concern. The proposal also notes that, as provided for under FSMA, the clock will stop for limitation purposes when the scheme rules come into force.
Members who have already been paid redress, complained to FOS or had their file reviewed by a Skilled Person under s.166 of FSMA will not be eligible (although those who had their file reviewed other than by a Skilled Person under a PBR will be eligible). The review will also not cover insistent clients. As anticipated, firms will assess their own advice, but its now proposed that, if a firm deems a transfer suitable, the file will be passed to FOS for an 'independent review', with the referral process to be facilitated by the FCA. This has been proposed in response to concerns from steelworkers about financial advisors 'marking their own homework'. Firms will be required to review advice using an updated version of the DBAAT, specifically designed for use with BSPS transfers. A copy of this is included with the appendices to the proposal.
It's proposed that redress calculations will need to be completed using the (as yet unpublished) revised version of FG17/9, which covers redress for defined benefit pension transfers – it's anticipated that the revised guidance will be published in July. The FCA notes the unique circumstances of BSPS transfers mean that an assessment will need to be made as to whether members would have retained BSPS membership (and fallen to the PPF) or transferred to BSPS2. The FCA is considering publishing a calculator to help firms complete any loss assessments.
The consultation will close on 30 June 2022 with a policy statement (and the scheme rules) being published in autumn / winter. However, the high-level proposals for redress calculations will require a response by 12 May. The scheme would then come into force in 2023. The proposals are likely to raise questions around the absence of an opt-in process and the use of FOS as an independent arbiter in particular. In general, the pressure from the FCA shows no sign of letting up and a clear theme of the consultation paper is the need to maximise redress in what remains a sensitive issue for the regulator.