Parliament’s Public Accounts Committee has produced a report that finds  the Financial Conduct Authority failed to protect British Steel pension scheme members from “unscrupulous financial advisers” who were incentivised by existing fee structures and regulation to provide unsuitable advice that led to around 7,800 steelworkers losing an average £82,600 in life savings, with some losing up to £489,000.

There is nothing new in this , other than the tone of the language and the rigour with which it holds the FCA accountable. But the report is the first Government publication that finds wholly for the steelworkers and should be of great value to them.

The Public Accounts Committee (PAC) is a select committee of the British House of Commons. It is responsible for overseeing government expenditures, and to ensure they are effective and honest. It helps to determine who gets what. The good news for steelworkers s that it finds for them.

The PAC finds the FCA was “consistently behind the curve” and despite being aware of the potential risks to consumers caused by new ‘pension freedoms’ in 2015 it “failed to take preventative action to protect consumers”.  

By 2017, the FCA still “did not know what was happening in the DB pension transfer market or the BSPS case”. It had “inadequate oversight of the firms involved”, and only later found out that in “47% of cases the advice provided was unsuitable”.

Its report finds that the FCA’s response was “focussed on gathering further evidence and issuing letters to firms, rather than enforcing against non-compliance, to date it has issued only one fine.”

Most importantly to the victims of bad advice, the report finds serious shortcomings in the redress system in operation so far

The complaints-based redress process adopted by the FCA “proved ineffective for BSPS members, with only 25% of BSPS members raising complaints. Many have not been
compensated fully, and for those whose advice firms have entered insolvency, £21 million in compensation has been lost due to financial limits.”

There are already concerns that potentially thousands more cases of mis-selling will push the FCA’s estimated £71.2 million cost of compensation for those who received bad advice
significantly higher. The Committee also points to wider problems in the FCA’s authorisation and oversight of small firms, its access to data and intelligence to identify problems and its use of enforcement powers to respond to them quickly.

Dame Meg Hillier MP, Chair of the Public Accounts Committee, asks the key question;

“The head of the FCA at the time, Andrew Bailey, stressed to the PAC that these were the ‘most complicated financial decisions a person could make in their lifetime’ – so how was it
that even with 2 years lead time the organisation was unprepared: first for the systematic mis-selling that robbed thousands of their life savings and retirement plans, and then in
coming up with a redress process which is hard for those affected to navigate.”

Here, for the comfort of Steelworkers who may be wondering just who in the financial regulatory system is on their side, is the Public Account Committee’s summary to its report – in full.

Investigation into the British Steel Pension Scheme .

The regulated financial advice market is designed to safeguard consumers from making
poor financial decisions. However, for members of the British Steel Pension Scheme
(BSPS) the advice market failed to protect them and caused serious financial harm.
Advisers were financially incentivised to provide unsuitable advice, which led to
approximately 7,800 steelworkers transferring out of their defined benefit (DB) pension
scheme and as a result, losing an average of £82,600 in life savings.

The FCA has consistently been behind the curve in responding to unsuitable pension
transfer advice. Despite being aware of the potential risks to consumers caused by new
legislation in 2015, it failed to take preventative action to protect consumers. In 2017,
the FCA had limited insight into the risks to members from transferring out of DB
schemes. It did not know what was happening in the DB pension transfer market or
the BSPS case, and failed to identify the scale of the issue.

It had inadequate oversight of the firms involved, and later found out that in 47% of cases the advice provided was unsuitable. The FCA’s response involved a light touch regulatory approach failing to take swift action and adequately protect consumers. Focussed on gathering further evidence and issuing letters to firms, rather than enforcing against non-compliance, to date it has issued only one fine.

To remedy the financial detriment caused, the FCA adopted a standard complaints-based redress process which proved ineffective for BSPS members, with only 25% of BSPS members raising complaints. Many have not been compensated fully, and for those whose advice firms have entered insolvency, £21 million in compensation has been lost due to financial limits. The FCA has proposed a redress scheme, which the FCA estimates would cost around £71.2 million in compensation to those who received bad advice. However, there are concerns that this figure may end up being significantly higher.

The BSPS case points to 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 to identify problems, and its use of enforcement powers to respond to them quickly. It also highlights significant risks including the overall function of the pension advice market and the capacity of redress organisations to manage large scale consumer detriment.

Here are the six recommendations made  to the FCA to ensure that steelworkers get properly compensated and that what happened during the BSPS Time to Choose does not happen again. I am pleased to be one of the many people who contributed to the PAC’s research, but recognise that the hard work has been done by steelworkers such as  Rich Caddy and David Neilly and most of all by Al Rush.

Recommendations of the PAC report

Recommendation: The FCA should provide the committee with 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.

Recommendation : The FCA should 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.

Recommendation: The FCA should report to the committee on the progress being
made on its 30 active enforcement cases, how it is updating its approach to make a
clearer distinction about how it enforces against poor conduct and rogue advisers,
and how it signals the outcome of its actions to the wider market. The FCA should
review whether it has sufficient enforcement powers to deal with bad actors in the
financial industry. The Treasury should consider how to address concerns about
activity relevant to, but not within, the FCA’s remit, for example the actions of
introducers in cases such as the BSPS.

Recommendation: 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 should also 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.

Recommendation: The FCA should be more proactive and consumer-focused in its
engagement with stakeholders. It 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.
The FCA must also review how effective the Financial Services Consumer Panel is
at consumer protection and how it influences policy debates within the FCA from
a consumer angle.

Recommendation: The FCA, FOS and FSCS should write to the committee in 6
months to explain what they are doing to manage risks in the redress system for
financial service. The FCA’s handling of the wider DB pension market should be
reviewed as there could be thousands more cases of mis-selling which may be eligible
for financial redress, given the significant amount of unsuitable advice seen across
the sector. The review should include consideration of solutions in circumstances
in which an industry-wide levy is insufficient to pay out compensation to those
who are eligible.

What good can come out of this report?

Many will claim that the Public Accounts Committee is merely harrowing well-tilled ground. But that is to miss the detail – on which Rush, Caddym Neilly and others are working.

In the body of the report is a recognition of a problem which is most concerning , the compensation paid out to early complainers.

The FCA provides guidance on how compensation should be calculated and sets the rules for how compensation is delivered. Calculations use complex financial assumptions
which are updated every three months in accordance with market performance, and therefore are subject to changes in the market which causes significant variation in the amount of compensation delivered to BSPS members. The FCA updated the calculation in 2021 causing members who sought compensation early to receive significantly lower amounts than those who claimed after 2021.49 Similarly, the FCA has imposed limits on
the compensation awarded by the FSCS, which is capped at £85,000 for firms that failed after April 2019 and £50,000 for firms that failed before. This further unfairly penalises
those who followed the FCA’s guidance and sought compensation early.

Members are unable to seek further compensation, and many feel they have been treated unfairly because of the timing of their complaint; as described by one former member, the prospect of not getting their rightfully deserved compensation is both un-just and heart-breaking

The immediate focus of the FCA and of FOS and FSCS must be to ensure that all those who are compensated – are treated equally fairly. In particular, FOS and FSCS need to look into the transparency of their processes and the way they treat their customers.

There is a strong feeling in Port Talbot , Scunthorpe and elsewhere, that these bodies are more interested in damage limitation to their reputations than the interests of the steelworkers.

This report sides squarely with the mis-treated steelworkers and not the interests of regulators or advisors. It should be of great comfort to the long-suffering victims of this scandal.