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Financial Conduct Authority redress proposal following British Steel pension mis-selling scandal
Financial Conduct Authority redress proposal following British Steel pension mis-selling scandal
Almost 8,000 steel workers suffered "significant financial losses" after being given unsuitable advice about their pensions. The most common advice arose from being advised to transfer their vast pension savings out of the British Steel pension scheme (BSPS) by advisers who received financial incentives for transferring them to much less favourable schemes.
On Thursday 31st March the Financial Conduct Authority (FCA) outlined proposals to use rarely invoked powers to force 340 firms to review pension transfer recommendations given to around 4,000 BSPS members between May 2016 and March 2018.
This comes only two weeks after the UK’s National Audit Office (NAO) released its report into the British Steel Pension Scheme (BSPS) scandal, and now the Public Accounts Committee has opened an inquiry into the case which closes on 20 April 2022.It will investigate what work was undertaken to “regulate financial advice in the BSPS case” as well as what has been set up to support steelworkers who may be entitled to redress.
The FCA reviewed 365 files from 89 firms who advised BSPS members during the ‘Time to Choose period’ andestimates that financial advice was unsuitable in 47% of all BSPS cases and unclear in a further 32% of transfers.51 of the 89 firms reviewed, had cases of unsuitable advice. As a result the FCA concluded that there was strong evidence that unsuitable advice was widespread among the firms advising BSPS customers in the relevant period.
In 66% of cases the client relied on the income from this defined benefit (DB) pension scheme. In 60% the key reason for the transfer was to maximise death benefits and the firm had not properly explored other ways of doing that. In50% the client was under the minimum age that they could access their pension (some only being in their early 30’s). In 46% the transfer analysis did not support the transfer and in 40% the client did not have the knowledge and experience to understand the risks of the transfer.
The applicable FCA rules from May 2016 – March 2018 that were breached include:
- COBS 2.1.1R, to act honestly, fairly and professionally in accordance with a client’s best interests.
- COBS 9.2.1R, to (1) take reasonable steps to ensure the suitability (2) obtain the necessary information regarding the client’s knowledge and experience, financial situation and investment objectives, so as to enable them to make the recommendation which is suitable for the client.
- COBS 9.2.2R and COBS 9.2.3R, set out in detail the information which must be obtained in order to have a reasonable basis for a belief that the investment is suitable.
- COBS 9.2.6R, provides that firms cannot make personal recommendations if they do not obtain the necessary information.
- COBS 19.1.2R, provides that the firm must compare the benefits likely to be paid under the DB scheme with the alternative pension. Specific rules also address the assumptions which the comparison must use: COBS 19.1.4R.
- COBS 19.1.6G, guidance which provides that a firm should start by assuming that a transfer will not be suitable and that a firm should only then consider a transfer to be suitable if it can clearly demonstrate that the transfer is in the client’s best interests.
It was concluded that where a consumer received advice to transfer their BSPS benefits to a defined contribution (DC) pension scheme, and that advice was unsuitable then the consumer should, in principle, be entitled to recover the full amount of the loss from that transfer from the adviser.
Since the scandal, the FCA has made changes to its internal processes. From 2018 it began collecting more data from financial advisers to improve its market intelligence. It has developed a joint protocol to enable early intervention in DB transfer cases. The FCA has also updated the qualifications it requires of pension transfer specialist’s advisers wishing to be approved. But ultimately, in October 2020, it banned charges for advice where consumers only pay when a transfer proceeds, except in certain limited circumstances.
Whilst changes have been made to regulate and improve the services provided by financial advisors, sadly mis-selling on various products still occurs across the board. Here at Box Legal we can offer competitive premiums to protect clients when pursuing these often challenging and arduous claims.
Resources referred to:
https://www.fca.org.uk/publication/consultation/cp22-6.pdf
https://www.fca.org.uk/publication/finalised-guidance/fg21-3.pdf
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