I have covered in three recent articles the work we have done in addressing the FCA’s proposals to introduce a redress scheme affecting everyone who advised any member of the closed BSPS Defined Benefit pension scheme to transfer out to a personal pension arrangement. This fourth links to our response to the FCA’s proposals. We are publishing our response, as submitted, to encourage sharing of ideas amongst firms and their advisers ahead of the deadline. Advisers should not assume, just because they did not advise on DB transfers or BSPS transfers specifically that they are not affected. We are all affected in many ways.
The proposed BSPS redress scheme CP22/6 crystallises a series of errors in theory and logic that the FCA has consistently made in the area of transfers. This has two destructive effects. First, it is deeply undermining for professionals to see that the theoretical and text-book underpinnings for ‘best practice’ that they have been trained and examined on can be glibly dismissed by regulators as wrong or irrelevant. Second, it undermines consumer confidence when regulators make out that advisers are systematically careless of the best interests of their clients. That is not who we are. It is a warped view that follows from the inability or unwillingness of staff at the FCA and FOS to work out rationally and analytically what ‘best interests’ means in a DB transfer context. Both organisations make mistakes in economics, logic and calculation. Both ride roughshod over the opinions of experts when they do not conform with their views. Both have designed biases, shortcuts and hindsight into their processes to enable them to reach the conclusions they want with minimum effort. Both have hitherto gone out of their way to avoid legal challenge on individual cases that could lead to them having to change their general rules, guidance or methods of assessing suitability.
The impact is that transfers as a whole, and many firms individually, have been blighted by the FCA for no good reason. The BSPS redress scheme will compound these injustices and spread the impact throughout the financial services industry in the form of FSCS costs. By imposing unwarranted heavy costs on professional indemnity insurers it will further blight transfers. We can expect even the best of firms with past DB transfer business to be affected, not only via levies and insurance premiums but by damage to the market value of their firms and even to their ability to sell or merge.
In the first of this series of articles, published when the redress scheme intention was first announced, I asked firms to get in touch if they had anything to add. A number did and our response to the FCA reflects their input, including actual experience of dealing with the FCA and FOS. The more that ideas circulate, as firms talk to each other and talk to lawyers, the more likely we can mount a successful push back.
Our contribution has been to take the whole FCA process of DB transfer suitability and case assessment apart and analyse every item, line by line. We have done this to answer many of the questions posed in their consultation paper but also to critique every aspect of the DB Advice Assessment Tool (DBAAT) that the FCA expects its own staff, advice firms and outside assessors to use to review past cases. A thorough analysis of its structural biases is not possible because the FCA has resisted requests from the industry to share details of its scoring methods and data about unsuitability findings that may have relied on its use. Though FOS is not obliged to use the same tool, we have cross referenced patterns of errors in FOS cases that appear to be traceable to reasoning errors originating with the FCA. We have analysed Grant Thornton’s paper, which was intended as an expert opinion on what an adviser might reasonably have been expected to do when advising on BSPS transfers, given the rules and practice at the time. It largely replicates the errors we identified in DBAAT. The opinion of the FCA’s QC about the lawfulness of the scheme relies heavily on Grant Thornton’s paper. The legal opinion and the statistician’s report both also rely on FCA claims about the scale and frequency of probable loss. Because that evidence is the product of the errors we highlight, neither can be relied on.
Wherever we think our analysis might have legal import we have flagged it as such. But we are not lawyers and we have probably flagged more instances than are realistically capable of successful action. Firms consulting with lawyers or compliance firms, whether in the context of BSPS, Past Business Reviews or s166 orders, are welcome to use our analysis as the basis of questions to their advisers about grounds for a legal challenge.
Here again is a link to our response to CP 22/6. It’s not a thrill a minute. In fact, I think it’s one of the most depressing reports I’ve ever worked on. But it could also be one of the most important.