The Financial Conduct Authority has said the UK regulator is still assessing if it should use its powers under section 404 of the Financial Services and Markets Act 2000 (FSMA) to set up a compensation scheme for those affected by the British Steel Pension Scheme (BSPS) scandal.
The regulator’s chief executive Nikhil Rathi said in a letter to Treasury Select Committee chair Mel Stride that, while the FCA has not ruled out the use of such powers, “based on the file reviews undertaken so far, we do not yet consider that we have sufficient evidence to determine whether the test has been met”.
In order for the watchdog to use section 404, several targets need to be met. It can exercise the power where it has “seen evidence of a widespread, or regular, failure by firms to comply with requirements, which has resulted in consumer loss and where it is desirable to make rules for securing redress”, Rathi added.
But the FCA is currently undertaking further file reviews to gather more evidence on the issue, so it has “not ruled out its use”.
Rathi said that the creation of a redress scheme could have a “significant impact on the market and on pension freedoms more generally”. The effects could include:
- Professional indemnity (PI) insurers further restricting or significantly increasing the price for cover and, as a result, rising costs for firms; and,
- A greater number of businesses exiting the market and avoiding redress. This would have implications for the Financial Services Compensation Scheme (FSCS), as it would increase the levy applied to the remaining companies in the advice sector.
In addition to the work done so far on the BSPS, the FCA has more work underway to consider consumer redress, Rathi added, which include:
- A total of 36 past business reviews covering an estimated 1,5000 BSPS cases;
- Around 30 enforcement investigations;
- Contacting approximately 12,000 BSPS members in 2018 who had requested a transfer value, alongside the Pensions Regulator and the Money and Pensions Service;
- Mailing 3,800 members in South Wales to promote consumer events in 2019;
- A survey of 310 BSPS members who transferred out of their scheme to understand barriers to complaining. The responses will inform the regulator’s forward strategy;
- A webpage dedicated to BSPS, which went live in June 2021, containing information and advice for members;
- Creating a toolkit for members of parliament (MPs) to encourage affected members in their constituency to complain; and’
- Writing to 7,700 former members to inform them that some received unsuitable advice and that they should consider complaining.