FCA 'consistently behind the curve'; BSPS members caused 'serious financial harm'

The Public Accounts Committee (PAC) has shared recommendations for the Financial Conduct Authority (FCA), after its investigation into the British Steel Pension Scheme (BSPS) found that the advice market caused members "serious financial harm".

Following its recent inquiry into BSPS, the committee concluded that the FCA was “consistently behind the curve” in responding to unsuitable pension transfer advice, with some advisers financially incentivised to provide unsuitable advice.

This led to around 7,800 steelworkers transferring out their defined benefit (DB) pension, in turn losing out on an average of £82,600, with later reports from the FCA revealing that around 47 per cent of the advice given was unsuitable.

In addition to this, the PAC found that, despite being aware of the potential risks facing consumers by the 2015 pension freedom reforms, the FCA “failed” to take preventative action to protect consumers and failed to properly identify the scale of the issue.

FCA's response to the situation faced particular scrutiny, as the committee argued that it had failed to adequately protect consumers, focusing on gathering further evidence and issuing letters to firms, rather than enforcing against non-compliance.

Indeed, the PAC noted that whilst the regulator is currently working on a further 30 enforcement cases, it has only issued one fine to date.

More broadly, the committee highlighted the BSPS case as demonstration of wider issues within the regulation of financial advice, such as the FCA’s authorisation and oversight of small firms, its access to data and intelligence, and its use of enforcement powers.

In light of the concerns raised, the PAC requested that the FCA provide an update on the extent and impact of unsuitable advice on BSPS members; and what it has done to prevent a similar case from occurring again, and in particular, changes to its approach to regulating small advice firms.

It also recommended that the FCA examine what can be done to improve the data and insight that they need to inform a more proactive approach to regulation, and what lessons can be learnt from its response to the Covid-19 pandemic.

In addition to this, the committee requested an update on the progress being made on the FCA's 30 active enforcement cases, how it is updating its approach, and how it signals the outcome of its actions to the wider market.

It also called on the FCA to review whether it has sufficient enforcement powers to deal with bad actors in the financial industry more broadly.

Although the FCA is currently working on a potential £71.2m compensation scheme for former members of BSPS, the committee raised concerns that the compensation provided in the case so far has been slow and unfair”.

In particular, it pointed out that complaints made to the Financial Ombudsman Service (FOS) have taken an average of eight months to process, whilst those who sought redress through the Financial Services Compensaton Scheme (FCSC) lost £21m in compensation due to FCA imposed financial limits.

As a result, the PAC recommended that, in considering the implementation of a consumer redress scheme for BSPS members the FCA should consider how further redress mechanisms can be implemented more quickly and provide fair compensation.

It also called on the FCA to consider how to resolve differences in the levels of compensation received by BSPS members to date, and how this compares to the amount that other members will receive from the proposed FCA redress scheme.

More broadly, the committee said that the FCA should be more proactive and consumer-focused in its engagement with stakeholders, and 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.

In addition to this, the committee asked the FCA, FOS and FSCS to provide an update in six months to explain what they are doing to manage risks in the redress system for financial service.

It also suggested that the FCA’s handling of the wider DB pension market should be reviewed, in light of concerns there could be “thousands” more cases of mis-selling which may be eligible for financial redress.

Commenting in response to the concerns, the FCA stated: “The circumstances around BSPS transfers were exceptional, and we know that many members lost out due to poor advice.

"We will carefully consider the recommendations of the report and respond to the committee.

“We’ve proposed a scheme which should see advice firms pay over £70m of compensation to steelworkers. That’s in addition to over £70m which has already been paid out. And people affected don’t have to wait for the scheme to be in place to make a complaint.

“We’ve also made sure that only firms with the right skills and experience can provide advice on pension transfers in future – over 700 firms have stopped doing so due to our work. We’ve also learnt real lessons for the future, including improving how we work with other regulators.”

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