The FCA’s consultation on a redress scheme for members of the British Steel Pension Scheme (BSPS) is due to begin next month. The BSPS defined benefit transfer advice has been under scrutiny for a number of years and many of the larger (or more prolific) financial planning businesses have already undergone redress programmes. Reports suggest the BSPS scheme alone could cost the financial advice industry £300m. Given this is only a slice of the volume of transfers undertaken across the industry, there’s no doubt the total cost will reach billions.
In December last year, the FCA sent a Dear CEO letter to those firms under the scope of a BSPS redress scheme, setting out a number of actions it expected firms to take with immediate effect. This letter coupled with the number of section 166 reviews we have seen in play across the industry demonstrates defined benefit transfer remediation is not going away any time soon.
The Dear CEO letter heavily emphasised the regulator’s concern that some firms will try to avoid redress payments through insolvency. This concern was reemphasised by guidance recently published by the FCA warning that firms using company or insolvency law to manage their liabilities could face assertive action if their proposals unfairly benefit them at the expense of their customers. If you received the letter from the FCA, here are some actions you should take:
Ensure you have adequate financial resources
- Firms should ensure they have adequate resources for any potential redress payments, including adequate Professional Indemnity Insurance. If not, they must notify the FCA as soon as possible.
- If there is a liability, firms must consider their solvency, and must not enter a solvent liquidation or apply to dissolve the firm without notifying the FCA in advance.
Retain assets for a potential redress exercise
- Firms that advised BSPS members should not dispose of, withdraw, transfer, deal with or diminish the value of any of their assets.
- Firms should ensure that any payment or disposal of assets is in the ordinary course of business and / or consistent with their usual monthly expenditure.
- Firms should not enter arrangements to remove assets from their business in anticipation of regulatory action or insolvency. This includes the sale, transfer or removal of all or any part of the business, as well as providing, or selling, client information to claims management companies.
Try not to avoid responsibilities
- Firms should not apply to cancel their authorisation without first discussing their plans with the regulator.
- The same applies to directors, partners, controllers or others associated with firms who gave advice to BSPS members during the relevant period who are considering applying for authorisation via a different legal entity.
- Firms should continue to carry out robust due diligence before submitting any new applications for Significant Management or Controlled Functions for candidates who have a connection to giving advice to BSPS members during the relevant period.
While the BSPS has been in the media limelight for some time now, this scheme is likely to be only the tip of the ice-berg when it comes to unsuitable defined benefit transfers.
While the BSPS has been in the media limelight for some time now, this scheme is likely to be only the tip of the ice-berg when it comes to unsuitable defined benefit transfers. We believe there are more pension schemes with similar characteristics from large institutions and employers, who have not yet received the same regulatory scrutiny.
Financial advisers and firms should be aware once the BSPS consultation concludes, the regulator is likely to turn their attention to the advice given on other similar schemes. It would therefore be prudent for firms to proactively investigate schemes similar to BSPS within their book and perform some risk analysis to get ahead of the regulatory curve.
Simon Goryl is a consultant at Bovill
How many PI insurers are likely to do anything other than withdraw cover a.s.a.p.?
All of them?
The question was rhetorical, Alan. The proverbial creeks are likely to be very crowded with people up them not just without a paddle but fatally holed below the waterline.
And just what “risk analysis” does Mr Goryl suggest to enable firms to “get ahead of the regulatory curve”. This latest FCA witch hunt has already gone beyond being a matter of risk. The knives are out and the FCA is looking for victims.
For those truly misadvised there should be compensation, but that is the problem, who truly had bad advice?
Too many, especially British Steel transfers can see a big cash payment and although they would refuse to move back to an annuity, to BSPS2 or the PPF (which proves they wanted the transfer) cases are being upheld. Clients are relying on political and regulatory will to give them the penny and the bun.
The new scheme should be annuity based. All pension funds transferred returned, if required a compensation payment made, either to the PPF or to an annuity. In the case of British Steel they should be returned to the BSPS2. The regulator passed a new law quickly enough to allow TATA to close the old scheme and the pension trustees quickly enhanced the transfer values. I will predict, if this was introduced right now, 75% of British Steel claims would be withdrawn by the members.
Living in a Steel City, I have heard Steel Workers openly admitting they are claiming for their FREE money, even though they are very happy. They justify this as the FCA told them to. Steel Workers are arguing with each other as many quite rightly think this wrong. They are happy they transferred, would not accept a move to annuity, BSPS2 or the PPF if this was the compensation offered. This to me proves how unfair the current process, many rulings and outcomes are.
The regulator yet again has taken 4 years to start to talk about what many have been screaming for over this time. It will then take another 12 months if they do anything. SO, 6 years the time bar will have past, the industry will have paid out millions on unfair judgements, but that is fine as no one cares.
Meanwhile the newly regulated claims companies are charging contingent charges of typically 20%, to send a few letters, then bend the rules and refer to the FOS and FSCS. The regulator is standing back yet again, failing in its duties to protect the consumer.
All this should be stopped, could have been prevented, but as advisers are unwilling to stand together, much happier undermining each other, they will be made the escape goats and forced to pick up the costs for everyones failings, not just for the hand full of bad advisers.
I have just said the same on another board, just not quite so eloquently.
The FCA, FOS and FSCS do not understand people. If they were told any reimbursement was back into their old scheme they wouldn’t be interested but a new DC scheme and compensation in cash, yes please!