The Financial Conduct Authority had “inadequate oversight” of companies involved in the British Steel Pension Scheme transfer scandal and was “consistently behind the curve” when responding to issues, MPs have claimed.
A report into the handling of the BSPS saga by the Public Accounts Committee, published on July 21, looked at how the regulator handled the issue, the proposed redress scheme, and how prepared the FCA is for future risks.
The committee found that the FCA was “consistently behind the curve” and, despite being aware of the potential risks caused by pension freedoms being introduced in 2015, it “failed to take preventative action to protect consumers”.
The group of MPs said that by 2017 when the BSPS was well under way, the FCA still “did not know” what was happening in the defined benefit market and it had “inadequate oversight of the firms involved”, only later finding out that in “47 per cent of cases the advice provided was unsuitable”.
This report shows how badly they were treated and where the FCA failed to support them in their hour of need
Nick Smith MP
The committee also pointed to wider problems in the FCA’s authorisation and oversight of small companies, with which the FCA acknowledged there were clear issues.
“The FCA’s lack of access to timely data and insight into the DB pension transfer market indicates that the regulator was slow to understand the risks to pension members and how to effectively monitor these,” the MPs said.
“This was made worse by the FCA’s focus on regulation of big firms, which left smaller firms out of the spotlight as the former chief executive of the FCA admitted.”
It accused the FCA of failing to protect BSPS members from “unscrupulous financial advisers” who were incentivised by existing fee structures and regulation to provide unsuitable advice, which led to around 7,800 steelworkers losing an average £82,600 in life savings, with some losing up to £489,000.
Redress process was ‘ineffective’
The committee argued that the FCA’s response was “focused on gathering further evidence and issuing letters to firms, rather than enforcing against non-compliance — to date, it has issued only one fine”.
The PAC said the complaints-based redress process adopted by the FCA proved “ineffective” for BSPS members, with only 25 per cent of these individuals raising complaints.
Many have not been compensated fully, and for those whose advice companies have entered insolvency, £21mn in compensation has been lost due to financial limits, it explained.
In March, the FCA set out plans to deliver £71.2mn in compensation to BSPS members who received unsuitable advice to transfer out of their pension.
The regulator estimated that 1,400 steelworkers would receive redress under the scheme.
But the MPs said there are already concerns that potentially thousands more cases of mis-selling will push the FCA’s estimated £71.2mn cost of compensation, for those who received bad advice, significantly higher.
An FCA spokesperson said: “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 £70mn of compensation to steelworkers. That’s in addition to over £70mn 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.”
Committee lead member and Labour MP Nick Smith said: “Steelworker pensioners came to me four years ago telling me they had been ripped off and were worried that no one was there to help.
Call for British Steel compensation to go through PPF
Adviser trade body the Personal Investment Management & Financial Advice Association has called for those who were wrongly advised to transfer out of the British Steel Pension Scheme to be transferred into the Pension Protection Fund, so they can once again have a guaranteed income.
“This report shows how badly they were treated and where the FCA failed to support them in their hour of need.”
Smith said the FCA “failed to get a grip” on this scandal at the outset, was slow to respond in the aftermath, and not nearly enough has been done to hold those responsible to account.
“Working people in this country need a regulator that protects them and is able to take strong action against the financial sharks that would target them,” he added.
This article first appeared on FTAdviser.com
