We received the following information (30th May) in response to my FOI request concerning the FCA’s processes for DB-transfer file assessment and the extent of its reliance on a single third party, Grant Thornton.
The relevance of the questions to the proposed British Steel redress scheme was set out here. The FCA’s Consultation Paper hinted at the extensive but undisclosed involvement of Grant Thornton in its supervisory work on DB transfers, whilst the accompanying paper prepared by Grant Thornton demonstrates the same errors in reasoning and fact that we have attributed to the FCA itself. Whilst we felt it was important to understand how the FCA’s errors have arisen, it makes no difference to the responsibility of the FCA for those errors, even when relying on outsourcing.
Taking into account the known differences in professional opinion about transfer suitability, both amongst advisers and firms appointed to perform s166 reviews and Past Business Reviews, the regulator’s heavy reliance on a single source seems inappropriate. But, in light of the response below, it does not alone appear to explain the errors. One impact, however, is that the QC appointed by the FCA to advise on the legal tests for the proposed redress scheme was asked to rely on Grant Thornton’s report of the contemporaneous standards for a professional advising on a transfer at the time of Time to Choose. This has the effect of validating the errors, particularly in relation to interpretation in the context of a DB transfer of non-specific suitability rules that were only later altered to be made specific to transfers. This is one of the main planks of challenge to the FCA’s redress scheme and its reliance on a particular file-assessment format, DBAAT. The origin of this hindsight is clearly the FCA itself and why Grant Thornton chose not to question it, both when preparing their paper and when applying the DBAAT process in practice, is for them to answer.
‘Dear Mr Fowler
Thank you for your request of 3 May 2022, in which you asked for information on the FCA’s thematic and supervisory work in relation to Defined Benefit (DB) pension transfers specific to, but not limited to, the proposed BSPS redress scheme (CP22/6).
We have processed your request in line with the provisions of the Freedom of Information Act 2000 (FOIA) and we have answered each question in turn below.
1. Was Grant Thornton involved in performing the BSPS file reviews the CP evidence is based on?
Yes. Grant Thornton was contracted to perform file reviews on the FCA’s behalf. They reviewed 268 of the 365 files the evidence in CP22/6 is based upon.
2. Were any other third parties not connected to them involved in the BSPS case reviews relied on in the CP?
No.
3. Were the suitability findings of i) the BSPS cases and ii) the non-BSPS cases, as differentiated in the CP, performed by different parties, rather than i) and ii) having the same party or sets of parties in common?
The file reviews that underpin our evidence on both the 46% (BSPS cases) and 17% (non-BSPS cases) were completed either internally by FCA members of staff or by Grant Thornton which was contracted to perform some file reviews on our behalf.
4. Was Grant Thornton involved in non-BSPS file reviews that have led to action against firms in relation to their DB transfer business?
Yes.
5. Were firms affected by such action told that their file reviews had been outsourced?
No. Where Grant Thornton completed the file reviews on our behalf, we used these as the basis, alongside our own supervisory judgment and visit findings for the feedback to the firms. The firms were not told that the files reviews were carried out by Grant Thornton. However, in some cases we were asked by firms ‘who completed the file reviews’ and we responded that we had engaged an external expert (where relevant).
6. Was Grant Thornton involved in the production of i) the standard DBAAT form and/or ii) the manual for using the form?
Grant Thornton was not part of the initial development or production of the DBAAT (tool or instructions). When we contracted them to carry out file reviews, they were involved in some of the later stage testing and refinement/calibration.
7. Was Grant Thornton involved in adapting the standard DBAAT form for use in the proposed redress scheme?
No. Grant Thornton was engaged to provide an independent report on the standard expected of a reasonable pension transfer specialist advising a client during the period under review. Grant Thornton’s views were taken into account in the production of the BSPS DBAAT instructions.
8. Did either of the two case studies used in chapter 3 (‘that we and the Financial Ombudsman Service have seen’) involve at any stage a file review by Grant Thornton?’
No. Paragraph 3.25 of CP22/6 states ‘The following 2 case studies outline typical scenarios that we and the Financial Ombudsman Service (FOS) have seen …’. Case study 1 is a fictional case study created by the FCA, based upon file reviews completed by Grant Thornton and ourselves. It is intended to illustrate a ‘typical’ BSPS member. The client circumstances do not relate to a specific individual, as data protection laws prevent us from disclosing information which may directly or indirectly identify a person. Case study 2 relates to a FOS decision (DRN3102248) so, whilst this is a real-life case assessed by the FOS, we are not aware that it relates to a specific file review carried out by Grant Thornton.
Yours sincerely,
Information Disclosure Team / Operations, FCA’