This article will be of relevance to firms who have provided pension transfer advice to members of the British Steel Pension Scheme. Note that imminent action is required.

Background

On 27 April 2022, PS22/4 came into force, applying an asset retention on firms that provided BSPS members with advice to transfer between 26 May 2016 and 29 March 2018, and their insurers. Only firms who had conducted five or more BSPS transfers during the period were affected. Firms in-scope were required to conduct a Financial Resilience Assessment (FRA) based on a specific formula, and hold additional capital as calculated.

Extended asset retention

PS22/4 ended on 31 January 2023 but taking its place is PS23/1. The new scheme, whilst similar to PS22/4, is likely to result in more firms now being in scope as the number of transfers advised on has reduced from five to three. This means that any firm which has provided three or more BSPS members with advice to transfer between 26 May 2016 and 29 March 2018 will be caught by the asset retention.

Rationale behind PS23/1

The FCA have implemented PS23/1 to help ensure that firms which provided unsuitable pension transfer advice to BSPS members during the relevant period, meet the cost of the redress liabilities that arise, as oppose to this cost being passed to Financial Services Compensation Scheme (FSCS) levy payers. Furthermore, under the current rules, any compensation payable by the FSCS would be limited to £85,000, whereas there is no such cap should the liability fall on the advising firm and its insurers.

Required action for firm’s who have advised on three or four BSPS transfers between 26 May 2016 and 29 March 2018 

Any firm who had advised on less than five BSPS transfers during 26 May 2016 and 29 March 2018, was previously excluded from PS22/4. However, one of the key changes brought about by PS23/1 is that firms who have advised on either three or four BSPS transfers are now caught.

These firms will now be required to take the following action:

• Complete a FRA to indicate whether the firm is able to meet its contingent BSPS liabilities. As this is the first time that the firm is conducting the calculation, it needs to notify the FCA with the outcome by 28 February 2023. For details on how to complete the FRA, see PS23/1 page 13
• Where the firm has assessed that they can meet their BSPS liabilities, they should Continue to refer to FCA expectations on asset retention in the 31 March 2022 “Dear CEO” letter.
• Where the firm has assessed that they cannot meet their BSPS liabilities, the asset requirement applies to prevent transactions not in the ordinary course of business (for example the payment of dividends or member drawings)
• Complete the FRA at least every month, or immediately following any material change in financial circumstances, and notify the FCA of any change of outcome.

Required action for firm’s who have advised on less than three BSPS transfers between 26 May 2016 and 29 March 2018 

These firms will not be in-scope of PS23/1 and they should continue to refer to the FCA expectations on asset retention in the 31 March 2022 “Dear CEO” letter.

When will the asset retention end?

The extension means that the asset retention rules apply until the in-scope firm has “resolved all scheme cases that it is responsible for under the rules of the BSPS consumer redress scheme, or other relevant non-scheme cases, as follows:

• Scheme cases: Instances of BSPS advice that are subject to the rules of the BSPS consumer redress scheme (subject to CONRED 3.1.1R(6A)).
• Non-scheme cases: Instances of BSPS advice that would be in scope of the rules of the BSPS consumer redress scheme if they were not excluded under CONRED 4.2.2R(6) or CONRED 4.2.2R(7). These include certain complaints that have been referred to the Financial Ombudsman Service and cases that are subject to a past business review, that would have otherwise been in the scheme.”

However, firms should be aware that the FRA is likely to change over time, depending on a number of factors including resolution of cases and the number of consumers that opt-out of PS22/14.