In its latest “Dear CEO” letter, the Financial Conduct Authority (FCA) has written to firms expressing concerns about third-party actuarial providers used for redress calculations before its British Steel Pension Scheme (BSPS) redress scheme began.
In the letter, published on 19th May, the FCA said it had become concerned by some advice firms conducting redress calculations before the scheme commenced. These calculations were often completed using online portals provided by a third party.
The letter, signed by the FCA’s head of department, advisers, wealth and pensions 2 department, Nick McGruer, said: “Our concerns are heightened where there has been no actuarial oversight of the inputs into using third party actuarial provider portals.
“This appears to have been a contributing factor to the misleading redress offers made by financial advisory firms to former BSPS members before the scheme started.”
Earlier this year, the regulator highlighted that it believed firms were making unsolicited offers to ex-BSPS members who had not made complaints. Accepting such offers would have then excluded the ex-scheme members from receiving redress and could have seen them left with way less than the actual compensation due.
The FCA later said it had identified 15 firms doing this and that most were associated with the British Steel Adviser Group (BSAG), which brought a legal challenge against the FCA’s redress scheme at the start of the year. The challenge later collapsed.
The regulator also said in its letter that it had identified the following concerns after reviewing calculations made using third-party portals:
- Firms not using the first day of the quarter to value benefits/for assumptions and, instead, using variable valuation dates which benefit the firm by ultimately producing a lower redress figure.
- Firms using the revised methodology set out in PS22/13 for offers, despite that methodology not being in force at the relevant time, causing confusion for consumers and undermining public confidence.
- Firms, wilfully or otherwise, making technical errors that we would not expect persons competent in the calculation of redress to make.
The FCA went on to remind firms of its principles, continuing: “Firms and individuals will be held accountable for breaching our principles, and we will continue to use the full range of our regulatory powers to prevent harm to consumers.”
The regulator developed its own calculator, which launched on 26th April, to ensure ex-BSPS members would receive fair and consistent redress. The FCA said it expects firms to use its calculator for all redress cases, not just those linked to the BSPS.
The body also told firms they should review offers made using calculations from a third-party portal, even if an ex-BSPS member has accepted an offer on a full and final basis.
The “Dear CEO” letter continued: “If the calculations were made without skilled actuarial oversight of inputs and/or are deficient in any way outlined below, firms should recalculate redress using our calculator.
“If this shows the original settlement offer was too low, then the difference should be offered and paid to the consumer.
“Alternatively, if the original settlement was higher than the recalculated redress, the firm must not ask the consumer to repay the difference.
“As part of our ongoing supervisory work, we may request further information to ensure firms comply with our expectations.”