BSPS cases give insight into FCA misconduct enforcement

Hannah Ross and Jonathan Cavill of Pinsent Masons, who specialise in advising on financial services regulation, were commenting after the Financial Conduct Authority (FCA) outlined the action it had taken to-date in BSPS cases on Monday.

During 2017, BSPS members were asked to make decisions about their pensions as part of a restructure of the BSPS. BSPS members were asked whether they wanted to keep their pensions in the scheme or transfer them out. Around 8,000 members transferred out of it, with transfers collectively worth almost £2.8 billion. Subsequently, when concerns were raised about the suitability of the transfers, the FCA intervened and set up a redress scheme. It has also imposed a range of sanctions against firms and individuals in respect of the advice they provided.

Across five cases, the FCA has imposed two fines totalling £3.7 million, ordered a payment of more than £100,000 to be made to the Financial Services Compensation Scheme (FSCS), prohibited individuals from providing advice in relation to pension transfers, obtained an asset freezing injunction, and issued a public censure – the latter coming in a case in which it praised Quilter, the financial adviser business, for how it responded upon inheriting an inadequate control framework that its subsidiary Lighthouse Advisory Services had operated.

The FCA said there were two main types of misconduct associated with the cases.

It said in most cases, firms or individuals had breached the principle set out in the FCA Handbook that requires them to conduct their business with “due skill, care and diligence”. It said this meant advisers had “shown a significant lack of competence in their advice”.

In more serious cases, the FCA said firms or advisers had breached the principle that they must conduct their business “with integrity”. This, it said, meant that they had been reckless or dishonest in how they have dealt with consumers and/or it.

In relation to supporting wider redress efforts, the FCA said: “There may be significant redress due to consumers which will fall to the FSCS to pay. We are taking steps to maximise available redress by ensuring, where appropriate, that people we take action against pay money directly to the FSCS. This will ease the demand on the FSCS and ensure that the parties responsible for the wrongdoing pay redress.”

Ross said: “The FCA’s approach in these cases focuses heavily on principle-based regulation, so it is easy to see how the FCA might apply the same enforcement approach against firms and individuals that have engaged in similar misconduct in other areas. Businesses should not underestimate how far the FCA is willing to go to protect vulnerable consumers and achieve good outcomes, with an array of punitive enforcement actions being utilised.”

“Financial services firms need to proactively and promptly put things right when shortcomings in regulatory compliance are identified.  The regulator expects firms to ‘do the right thing’, and it’s clear from these BSPS cases that doing so can result in the mitigation of regulatory action and fines. Lighthouse Advisory Services is an excellent example of this: although publicly censured, the firm was not fined because its parent company, Quilter, took responsibility for a harm it did not cause, offering significant consumer redress and cooperation with the regulator beyond what was expected of it,” she said.

Cavill added: “The FCA’s approach here has a wide read-across for other FCA enforcement cases, providing an indication as to how the regulator will approach future enforcement actions in relation to new areas, such as the upcoming Consumer Duty. This note reflects a cultural shift in the regulator which sharply focuses on firms’ conduct: the FCA will increasingly expect firms’ cultures to change to meet the regulator’s expectations to mitigate or avoid future enforcement action.”