The government announced a major shake up of UK financial services, in the Queens speech, with the abolition of EU financial services regulation. This was widely expected after Brexit. The old EU regulations will be replaced with a new bill expected in 2023 providing new UK based regulation for Independent Financial Advisers.
This is welcome news.
The government says that the new regulations will cut red tape whilst still maintaining the highest standards of customer protection. Some key aspects of current European regulation are expected to be axed including the rules requiring cost disclosures, target market analysis and product governance rules, all of which have been a bone of contention for advisers for a number of years.
The new regulations for Independent Financial Advisers could also pave the way for lighter touch advice which doesn’t carry the current levels of regulatory protections and therefore costs. This could help to reduce the perceived advice gap.
In addition, the government is proposing to introduce new measures to protect fraud victims.
This is welcome news, not regulation for Independent Financial Advisers, but further regulation for banks and payment providers to improve compensation payments to customers losing money through push payment frauds. At the moment only 43 pence in every pound lost is refunded and the new legislation aims to address this. This is welcome news because it is likely to male banks and payment providers do more to combat fraud at their end if they are having to pick up the tab. So far this year customers have lost over £350 million to this type of fraud.
Meanwhile, the British Steel pensions compensation rumbles on
As we reported earlier this year, the FCA continues to move forward with its proposals to establish a compensation scheme for British Steel pensioners who transferred out of the scheme.
There is still a consultation ongoing, but the FCA seems to have made its mind up. They are currently suggesting that 1,400 steel workers may be in line to receive £71 million in compensation. That’s an average of £50,000 per pensioner. It seems like a very big number to us. It’s hard to see how the average steel worker could have lost or been disadvantaged to the tune of £50k each? The FCA’s method of calculation is unclear.
There is now a 70 strong group of advisers affected by the proposals who have come together to fight the FCA’s consultation. They have already raised questions about the method of calculation for the compensation, but also about the FCA’s assessment tool which is supposed to determine whether advice was suitable or not. This takes the form of a spreadsheet, but the assumptions used have not been disclosed despite Freedom of Information (FoI) requests being submitted. One area of concern from advisers is that the FCA’s spreadsheet seems to show that 39% of cases were unsuitable (in dispute) but the FCA upgraded this to 50% without explaining how or why.
The concern about this regulation for Independent Financial Advisers is that the compensation bill will put many of them out of business. The current estimate is that 350 advisers are potentially under threat. This can’t be helpful because the burden will fall on the rest of the industry if these firms go to the wall, adding more costs to business and the cost of advice.
It’s all very well for MPs to bang the drum about compensation. But they aren’t necessarily looking at all the facts or even understanding the longer-term consequences.
Then there’s the question of any actual compensation being paid. This should be paid back into the pension itself to recover the position, which would create tax liabilities for many pension holders who’d already retired.