Fourteenth Report - Investigation into the British Steel Pension Scheme
Select Committee
Public Accounts Committee
HC 251
21 July 2022
Government Response (AI assessment · 23 of 23 classified)
Accepted
1
Acknowledged
15
Deferred
1
Rejected
3
Recommendations
2 results
2
Acknowledged
The Financial Conduct Authority has consistently been behind the curve in responding to the catastrophic...
Recommendation
The Financial Conduct Authority has consistently been behind the curve in responding to the catastrophic impact on British Steel Pension Scheme members. The FCA has been slow to respond at all stages of the BSPS case, for example it failed …
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Government Response Summary
The FCA acknowledges that there are lessons to learn, but is concerned that the report does not fully acknowledge the ways the FCA has responded since 2017. The FCA will provide updates in line with the Committee’s recommendations and a response to some of the wider conclusions of the report in a letter dated 22 September 2022.
HM Treasury
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4
Acknowledged
The way that compensation has been provided in the British Steel Pension Scheme case has...
Recommendation
The way that compensation has been provided in the British Steel Pension Scheme case has been slow and unfair. BSPS members face significant delays in receiving compensation. Complaints made to the Financial Ombudsman Service take on average eight months to …
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Government Response Summary
The FCA has considered how further redress mechanisms can be implemented more quickly and provide fair compensation and its plans to improve the redress framework is in the FCA Business Plan for 2022/23, but it does not offer specific changes to resolve differences in compensation levels.
HM Treasury
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Conclusions (13) Observations and findings — click to expand
1
Conclusion
Acknowledged
On the basis of a report by the Comptroller and Auditor General, on 27 April 2022 we took evidence from the Financial Conduct Authority (FCA), the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) on the British Steel Pension Scheme (BSPS).2 The session included evidence provided by …
Government Response Summary
The government acknowledges the Committee's report and states it is the FCA’s response to the Committee’s report.
7
Conclusion
Acknowledged
The impact on members has been catastrophic, both financially and emotionally.15 Alongside losses caused by unsuitable advice to transfer, many members face ongoing advice charges to manage their remining pension savings.16 The FCA is unaware of the total financial loss experienced by members, it told us that it is conducting …
Government Response Summary
The FCA acknowledges the catastrophic impact on members and shares concerns about unsuitable advice, referencing meetings with steelworkers and the consultation paper CP 22/6.
8
Conclusion
Acknowledged
The FCA failed to take swift and effective action at all stages of the BSPS case. It first became aware of the risks of unsuitable transfer advice in 2015 after the introduction of the Pensions Schemes Act but failed to take sufficient action to prevent consumers from being harmed. At …
Government Response Summary
The FCA acknowledges that it failed to take swift and effective action at all stages of the BSPS case and shares concerns about unsuitable advice, referencing meetings with steelworkers and the consultation paper CP 22/6.
9
Conclusion
Acknowledged
The former Chief Executive of the FCA told us that, as the BSPS case unfolded, the FCA did not have the data to tell it which firms had provided advice to members and found it difficult accessing this information when it needed it. This delayed its response and meant it …
Government Response Summary
The FCA agrees with the committee's recommendation and shares concerns about unsuitable advice, referencing meetings with steelworkers and the consultation paper CP 22/6.
10
Conclusion
Acknowledged
In response to the BSPS case, the FCA had to gather further evidence to understand the scale of the problem and in June 2018, out of a sample of 192 files, it found that 47% of transfer recommendations were unsuitable.25 In order to take action against regulatory non-compliance, the FCA …
Government Response Summary
The FCA provided a high-level update on enforcement activity related to BSPS, stating it is a high priority and investigations are at an advanced stage.
11
Conclusion
Acknowledged
The FCA implemented ineffective regulatory interventions in its initial response to the BSPS case. For example, the FCA issued letters to advice firms reminding them of their obligations to provide advice that is in consumers’ best interests, showing its naivety in failing to understand the behaviour and motivations of unscrupulous …
Government Response Summary
Intervention work carried out by the FCA has also led to 48 firms withdrawing from the defined benefit pension transfer advice market. Interventions made by the FCA have required firms to cease all regulated activities relating to DB pension transfers and have stopped firms providing DB pension transfer advice to BSPS customers.
12
Conclusion
Acknowledged
To date, the FCA has only issued one fine in response to the BSPS case.36 It told us that it is working on a further 30 enforcement cases, but despite working as “swiftly 22 Qq 37, 38 (27 April) 23 Qq 37, 38 (27 April) 24 Qq 72–75 (27 April) …
Government Response Summary
The FCA is able to provide a high-level update on enforcement activity related to BSPS, stating that enforcement activity related to BSPS is a high priority. The FCA currently has c.30 ongoing investigations into firms and individuals relating wholly or partly to BSPS advice and five of them have entered either Stage 1 settlement discussions or the Regulatory Decisions Committee.
14
Conclusion
Acknowledged
The FCA oversees the consumer redress process which intends to put consumers back into the financial position they would have been in if unsuitable advice had not been given.45 Consumers must raise complaints directly with advice firms or the FOS within six years of receiving unsuitable advice. However, BSPS members …
Government Response Summary
The FCA has considered how further redress mechanisms can be implemented more quickly and provide fair compensation. The FCA Business Plan for 2022/23 sets out its plans to improve the redress framework, including carrying out redress exercises with firms where appropriate, so they can quickly remedy harm.
15
Conclusion
Acknowledged
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 …
Government Response Summary
The FCA states it will consider the Committee's feedback as part of its wider response to the BSPS redress consultation. The FCA explains its redress calculation methodology is designed to respond to changes in financial markets and produce an appropriate redress figure at the point at which the redress is calculated.
16
Conclusion
Acknowledged
Many BSPS members have not received the full amount of compensation owed to them due their advisers being unable to pay compensation. The FCA imposes limits on the compensation awarded by both FOS and FSCS, and the FSCS’s compensation limits are significantly lower.52 This unfairly impacts those whose advice firms …
Government Response Summary
The FCA states it will consider the Committee's feedback as part of its wider response to the BSPS redress consultation. The FCA explains its redress calculation methodology is designed to respond to changes in financial markets and produce an appropriate redress figure at the point at which the redress is calculated.
17
Conclusion
Acknowledged
The FCA and redress organisations worked to engage with and encourage BSPS members to seek compensation through direct letters and in-person events.54 Despite these efforts only 25% of all members who received unsuitable advice have raised claims with redress organisations, and the remaining 75% of members who may be eligible …
Government Response Summary
The FCA agrees with the committee's recommendation and describes its Business Plan commitments and engagement efforts with BSPS members and other consumer engagement methods.
20
Conclusion
Acknowledged
In direct response to the 2015 Act, the FCA announced a new starting position for advisers who should assume that in most cases a transfer will be unsuitable.63 Subsequently in 2017, the FCA sought to align itself with the government’s underlying philosophy of choice within pensions policy and consulted on …
Government Response Summary
The FCA removed the starting position rule in October 2020, has found a deterioration in the quality of advice, and published CP22/6 which if implemented would require firms to review their advice and pay redress to consumers where that advice was unsuitable, and will publish a Policy Statement on this later in 2022.
22
Conclusion
Acknowledged
The standard complaints-based approach to redress, which relies on consumers seeking compensation themselves, has proved ineffective in the BSPS case. Only 25% of members who received unsuitable advice have raised a claim with redress organisations.69 The FCA told us that it was surprised that more members hadn’t raised a complaint …
Government Response Summary
The FCA agrees with the committee's recommendation and describes its Business Plan commitments and engagement efforts with BSPS members and other consumer engagement methods.