The FCA’s special powers exercised five years late

How the FT broke the story in November 2017 https://www.ft.com/content/97fc63b4-c9fa-11e7-aa33-c63fdc9b8c6c

This blog argues that the FCA’s problems in 2022 are as a direct consequence of not listening to what was going on in 2017. The lack of decisive leadership over transfers has led to a need for a £71m redress system which is fundamentally flowed, to the ruin of many Financial Advisers and to a national scandal that was fully documented at the time on this blog, in the FT and by the BBC. The upside of digital media is that it socialises issues like these in real time. The FCA need to redefine their capacity to respond. They are, in terms of pension regulation,  still looking like a twentieth century regulator,

Limited redress for some steelworkers – too little too late

In a beautifully constructed article published in corporate adviser, Jo Cumbo explains how the redress scheme being established for victims of poor advice and the mis-selling of unsuitable complex financial products, are being excluded from redress because they were at the front of the queue for pay-outs.

She accuses the FCA of meeting out justice on the cheap and goes on to demonstrate how arbitrary and unfair compensation payments have been – so far

For many, the stress of having been mis-advised was compounded after they entered the compensation system by lodging a complaint with the FOS or FSCS.

Steelworkers have been left baffled and angered by lottery-like redress arrangements that seem to have little regard for consistency of payouts or accountability when things don’t add up.

Limited redress for Adrian.

One such glaring case of injustice was Adrian Burns, a 44-year-old former BSPS member who was advised to transfer his £330,000 DB fund in 2017 by Wales-based IFA Active Wealth.

Adrian felt more secure about the move after he checked his adviser Darren Reynolds was listed on the FCA’s online register.

Reynolds was later given a 13-year ban as a director after costing hundreds of clients over £24m from their pension funds due to high risk unregulated investments, according to a government report.

As Active Wealth went into default before April 2019, Adrian’s compensation in the FSCS was capped at £50,000.

Compensation was later made more generous to £85,000 for firms that failed after the arbitrary date of April 2019. But Adrian – and hundreds of other Active Wealth clients – did not benefit from this. But Adrian was then hit by a second unfairness.

Adrian did not have an IFA in place, to keep an eye on his transferred fund, now invested in the stock market, when his claim was lodged with the FSCS because he was taking his time to find a professional he trusted, after his bruising experience with Active Wealth.

But this wise caution would cost Adrian tens of thousands less in redress.

Little did he know that the FSCS takes ongoing advice fees – which can be a significant weight on a retirement fund – into account when calculating compensation.

But the FSCS did not make this important factor well known to potential claimants – who it acknowledged were vulnerable due to having mis-sold their pensions. Adrian wasn’t the only one to get caught in this trap. Following pressure the FSCS updated its website to make clearer the role of ongoing fees in its redress calculations, a tacit acknowledgement of the shortfall in its client communications.

But it refused to do the right thing and review the cases of Adrian, and others, adversely affected by its poor communications. This remains a serious injustice.

Another very serious unfairness issue was how the FCA handled its decision to change the formula for FSCS redress calculations in 2021. As a result of this decision, more than 100 claims that were settled after January 1 last year were reviewed, resulting in uplifts of thousands of pounds in most cases. However, claims settled before the arbitrary date of January 1 were not reviewed.


Limited redress for Michael Divetta

Michael Divetta, 47, a former BSPS member, complained to the FSCS after his £4,000 payout missed the January cut-off by weeks. “If you’re lucky enough, you win the £85,000 jackpot,” said Divetta.It is not just the steelworkers who have complained about glaring issues with the redress system.


Josephine Cumbo calls for the FCA to revisit these claims

In March the National Audit Office found steelworkers had been short-changed around £18m in compensation they were owed, due to the FSCS cap. Steelworkers are right to be angry about these unaddressed issues and they should not settle for justice on the cheap. The FCA should revisit settled claims so the door can be fully closed on this sorry saga for all.


Meanwhile, advisers feel they have been caught in a regulatory honey-trap

The FCA are looking for ways to fund the redress scheme without recourse to the public purse.

The UK’s financial regulator has invoked emergency powers to stop financial advisers involved in the steelworkers’ pension scandal from offloading their assets to avoid paying compensation.

The Financial Conduct Authority (FCA) said on Monday it was enacting the emergency rules this week, and without consultation, because it feared some companies would otherwise dispose of their assets, leaving a redress bill to be picked up by the industry lifeboat fund.

From today (April 27th), the regulator will prevent financial advisers to thousands of former members of the British Steel Pension Scheme from selling assets to avoid paying their share of a redress bill the FCA estimates will be £71mn.

The FCA’s Sheldon Mills commented

“Firms who gave poor advice to British steelworkers must ensure that they retain assets and funds to pay redress under our proposed scheme.” Mills added: “We will act swiftly if the rules aren’t being followed.”

Five years after the event, the concept of the FCA moving “swiftly” is very welcome. But IFAs are unimpressed. These are some of  the comments I have read in their protests against the FCA .

IFAs find the current FCA stance and work to be prejudicial, unfair on well-meaning advisers and based  financially illiterate.

They find the recently published consultation paper on their proposed British Steel redress scheme; CP22/6 a very worrying piece of work claiming it’s based on some suspect statistics on unsuitability levels across DB transfers generally and British Steel cases in particular

They see the  compensation methodology open to gaming and relying heavily on the Financial Ombudsman Services ability to separate good transfer advice from bad. This  at a time of high staff turnover and of pressure from FCA to find unsuitable cases to back their stance

They see it setting a dangerous precedence on transfers completed to date, opening well-meaning  advisers to compensation claims and huge liabilities which will ultimately bust the FSCS , enriching individuals already set for financial gains

IFAs claim that the consultation contains potentially discriminating views around knowledge and experience and the general value of financial advice and wealth management.

These argument have been presented to me again and again by advisers who read this blog and despair at the way they and their profession are being treated. The depth of feeling amongst competent advisers about how they have and are being treated by the FCA suggests that the BSPS redress scheme will not draw a line under the transfer problem.

The deep division  between practitioners and regulators is the result of both operating in a regulatory penumbra in which over £80bn transferred from DB to DC between 2016 and 2019. Nobody at the FCA took a lead and made a decisive move to nip contingent charging in the bud , ensure that steelworkers had access to clear guidance on the consequence of transfer and visit Scunthorpe and Port Talbot prior to and during Time to Choose. Instead advisors continued to dig themselves into trouble throughout 2018 and 2019. The contingent charging ban only came into force in October 2020.

The protracted redress process at BSPS threatens to be contagious and puts many advisory firms in a quandary. Are they next for retrospective action, are their assets likely to be frozen?

It is hard not to have some sympathy for advisers who feel they have been caught in a honey trap.


 A problem 35 years in the making

The pension transfer scandal, which extends much further than BSPS, happened because the door to transferring benefits has been left open since 1987. The door was opened wider when advisers found a way to advise on a “no win no fee” basis and the doors came off their hinges at BSPS. It is now only possible to advise on transfers for people who have the money to pay upfront for advice or for those with extreme ill-health positions where a transfer value is without doubt, more value than a pension.

For a second time, the scandal over pension miss-selling has settled on pension transfers. It’s because they represent an amount of capital many people on modest incomes consider “wealth”. The alignment of interests between wealth managers and potentially wealthy customers made the taking of the CETV a “no brainer” for both sides. The FCA had no answer to this logic.

The FCA felt they could not f issue a “cease and desist” order over BSPS because they did not make the law. Ironically, if the Pensions Regulator had allowed BSPS to go into  PPF assessment the law would have been different, but neither the FCA or TPR anticipated the consequence of the Time to Choose consultation on member choice. So long as BSPS remained outside of the PPF assessment, transfers were available, this is what I mean by a “regulatory honey pot”.

The law allowed CETVs from BSPS and the law allowed them to be taken with advice. But we now find they have special powers which they are belatedly applying that could have suspended the transfer process. Could those powers have been applied in 2017? That is the question that the FCA cannot avoid, it is the question of the NAO report.

The Regulator, the advisors and the members have all found themselves the victims of a law that has done nobody any favors. The law may be an ass, but the Regulator’s special powers were given them so that they could act “swiftly” where their rules weren’t followed.

It would have been better for IFAs and steelworkers if the FCA had acted with TPR at the time of the BSPS miss-selling debacle. You may say this is in the benefit of hindsight but Josephine Cumbo said this then, so did Al Rush and so did I. Regulation must move at a faster pace – to keep in step.

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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