Earlier this week (on 22 April 2024), the Financial Conduct Authority (FCA) published it’s ‘main decision letter’ in relation to complaints about how it conducted itself in response to reports that financial advisers had been providing improper advice. This was in relation to advice given to members of the British Steel Pension Scheme (BSPS) as to whether they should transfer out of the BSPS. 

Background

Tata Steel UK (TSUK) bought British Steel in 2010. However, by March 2016, TSUK had reportedly lost £2 billion in five years – it then announced its intention to restructure. 

Amongst these restructuring plans was to put the original BSPS (BSPS 1) – which provided defined benefits (DB) –  into the Pensions Protection Fund (PPF) via a  Regulated Apportionment Arrangement (RAA). The Pensions Regulator (TPR) accepted this request, citing that the RAA “was a good outcome and that no changes to the legislative framework were necessary” (in the words of the FCA’s letter). 

With BSPS 1 entering the PPF (which broadly speaking provides members with 90% of their expected pension benefits), TSUK began an internal campaign called ‘Time to Choose’ – referring to members’ choice between BSPS 1, and a new scheme which would provide a similar pension entitlement but with lower future pension increases (BSPS 2).

Additionally, members who were not close to retirement had the choice of transferring out of the BSPS completely, into a new defined contribution (DC) personal pension plan, should they so wish. To do so, members had to undertake a series of steps, including taking independent financial advice. In total, 7,834 members of the BSPS transferred out of the BSPS and opted for the DC plan. 

Advice Provided 

The letter summarises the issues arising from some of the advice received by members as follows:

“Due to the high demand for DB pension advice from BSPS members, an opportunity arose for advisers to take advantage of the situation as they were incentivised to recommend transfer. At the time, DB pension advisers were paid once a pension transfer completed. Many advisers took on more cases than they were able to manage competently, which also resulted in unsuitable advice.”

There are many examples of such poor advice being given (which, in December 2021, the FCA concluded to have been “widespread across the market”). One such example is that of Mr Armin, who was banned from holding any senior management function in a regulated firm and ordered to pay £200,000 to the Financial Service Compensation Scheme (FSCS) for his “seriously incompetent” advice provided to BSPS members. In advising BSPS members, Mr Armin was found to have largely disregarded vital information about customers which was necessary to assess whether it was suitable for them to transfer their pension”, such as their financial situation. Mr Armin also failed to explore alternatives to opting into the DC plan, such as staying in BSPS 1 or opting for BSPS 2). 

The Complainant’s arguments and the FCA’s response

In essence, the complaint (made on behalf of 354 members) can be split up into four topics. These were all rejected by the FCA. We have summarised the four sub-complaints and the FCA’s response to each below:

1. Lack of preparedness
   • Complaint – FCA “has consistently been behind the curve in responding to the catastrophic impact on members of the BSPS… [and] that it is inexcusable that the FCA was not more prepared for this potential scandal”.
   • FCA’s findings – citing actions taken in the years before the transfers-out began, the FCA rejects this ground. The FCA argue that it “had recognised potential harm could result from a pension transfer and had appropriate rules and guidance in place for firms to follow, including a presumption that a transfer from a DB to a DC pension scheme would not be suitable unless a firm could demonstrate, on contemporary evidence, that a transfer is in the client’s best interests”.
2. Failure to protect consumers, despite knowledge of misconduct
   • Complaint – FCA “failed to take steps to protect consumers”, despite the fact that it knew advice to have been “mis-sold or likely to be mis-sold”.
   • FCA’s findings – whilst the FCA acknowledged that there was a lack of significant information sharing with TPR (which was the main body involved with BSPS in 2017), the FCA rejected this ground on the basis that “Given [the] short timescale, and the fact that the FCA did not have timely knowledge, the FCA could not have reasonably prevented the harm from occurring.”
3. Inaction or lack of urgency of action
   • Complaint – FCA “failed to take steps to protect [BSPS members] in a timely way”, including by failing to impose the asset retention rules until April 2022. 
   • FCA’s findings – the FCA argues that its “complaints-led approach” was “timely and proportionate”. Regarding the alleged delay in imposing the asset retention rules, the FCA state that its approach was appropriate and that their “approach to asset retention evolved appropriately as the evidence of unsuitable advice increased”.
4. Inconsistent outcomes
   • Complaint – FCA’s “actions have resulted in inconsistent outcomes for consumers entitled to compensation”. 
   • FCA’s findings – the FCA disagree that inconsistent outcomes is a cause for concern, noting that it “would expect redress calculations to result in different values depending on a whole range of circumstances” (not limited to just the individual, but also the “current and expected future economic environment”).

Comment

On the whole, the FCA’s position is that, whilst significant harm was created in the provision of advice that it regulates, the FCA acted reasonably in both preparing and responding to the incidents. 

On the topic of knowledge it could be expected to have had, the main failing acknowledged in the letter is that there was “no clear information sharing arrangement with TPR on such events at the time”. The FCA accepted that it was therefore “reliant on intelligence from other sources” and that “had data sharing with TPR been in place for the BSPS, the FCA may have been able to start its assessments of firms sooner”. 

As noted by the FCA in the letter, it “accepted a recommendation from the Rookes Review related to this ”back in January 2019, meaning that the FCA and TPR now “operate in a more collaborative, joined-up way… [with there now being] a clear Memorandum of Understanding between the regulators, [which] was used successfully in subsequent DB pension transfers such as the Rolls Royce… and P&O in April 2022 with actions including issuing joint proactive statements setting out concerns and actions”. 

Overall, the letter goes to show the importance of preparation from regulators, in order to enable swift action when such major and widespread issues occur.

This article was written by Callum Duckmanton and Richard Pettit.