The Financial Conduct Authority (FCA) was “consistently behind the curve” when responding to the British Steel Pension Scheme (BSPS) transfer scandal, according to MPs.
The regulator’s oversight of firms involved in the scandal was “inadequate” according to a new report
The report said the FCA lacked access to data on DB transfers and criticised its lack of oversight of smaller firms.
It said: “The FCA’s lack of access to timely data and insight into the DB pension transfer market indicates that the regulator was slow to understand the risks to pension members and how to effectively monitor these.
“This was made worse by the FCA’s focus on regulation of big firms which left smaller firms out of the spotlight, as the former chief executive of the FCA admitted.”
The Committee said the FCA was aware of the potential risks caused to pension savers by the introduction of pension freedoms but failed to take preventative action.
According to the PAC, BSPS members were put in a vulnerable position by the FCA and pension regulators who failed to provide adequate information and support.
The group of MPs said this left members “open to manipulation” by “unscrupulous financial advisers who personally profited from giving bad advice”.
The MPs said the FCA’s response to the BSPS crisis was focused on gathering evidence of rogue behavior “rather than enforcing against non-compliance”.
The Committee also called the complaints-based redress process the regulator adopted as “ineffective”, as less than a quarter of BSPS members have submitted complaints.
The FCA recently said that it was looking at 343 advice firms involved in BSPS claims and was expecting to pay out over £70m in compensation.
MPs also found that advisers were financially incentivised to recommend DB pension transfers.
The Committee critcised how slow the FCA was to implement a ban on contingent charging and temporary asset retention restrictions.
The report called for the FCA to provide the Committee with regular updates on its findings around BSPS members and what the regulator is doing to prevent a similar scandal from occurring in the future.
The Committee also asked for updates on the FCA’s current 30 active enforcement cases and for the regulator to review whether it felt it had sufficient power to deal with rogue firms within the industries it regulates.
The report also called for the FCA, Financial Ombudsman Service and Financial Services Compensation Scheme to explain what they are doing to review “thousands more cases of mis-selling which may be eligible for financial redress” within the next six months, given the “significant amount of unsuitable advice seen across the sector” and how they will ensure there are enough funds to pay out compensation to eligible consumers.
In 2017, many British Steel workers were advised to transfer out of their defined benefit pension into a defined contribution pension, typically a personal pension or a Self-Invested Personal Pension (SIPP). The scandal has attracted national attention and criticism.
By transferring to a private pension arrangement, the BSPS victims would have potentially lost benefits already built up in the British Steel Pension Scheme.