The Financial Conduct Authority (FCA) is expected to consult on a redress scheme for former members of the British Steel Pension Scheme (BSPS) who transferred their pension by the end of March 2022.

The FCA highlighted BSPS as a “highly exceptional case”, with previous research from the regulator revealing that nearly half (47 per cent) of the advice given to members of the scheme was unsuitable, compared to 17 per cent for non-BSPS cases.

The consultation on a potential redress scheme, which would be limited to BSPS transfer advice issues, was requested by the FCA's board.

Ahead of the consultation, the FCA has written to firms that gave advice to BSPS members between 1 March 2017 to 31 March 2018, and are therefore in the scope of a potential redress scheme, to outline its expectations.

Firms in the scope are expected, with immediate effect, to ensure they have adequate financial resources, retain assets for a potential redress exercise, and to not try to avoid their responsibilities.

"Being unable to compensate consumers and transferring these costs to other market participants via the Financial Services Compensation Scheme (FSCS) levy is unfair and places an unnecessary burden on other firms. Where we see firms attempt to do this, we will take action to stop it," the regulator stated.

In addition to this, it warned that it will take such action as it deems necessary if a firm attempts to avoid redress liabilities.

The FCA will also be contacting firms in early 2022 in order to confirm the BSPS business written by them and to collect information to understand their potential exposure to liabilities relating to BSPS transfer advice.

AJ Bell head of retirement policy, Tom Selby, described the letter as a "fairly blunt message to those firms potentially on the hook for DB transfer misselling not to attempt to dodge their responsibilities by deliberately depleting their assets".

He continued: “Given the apparent industrial scale of pension transfer misselling in relation to BSPS members, it was always likely a formal redress scheme would be needed to pay compensation.

“Thousands of British Steel members may have left their defined benefit (DB) pension against their best interests, putting their retirement at risk in the process.

“Although transferring out of a DB pension can make sense in certain circumstances, such a decision needs to be taken with great care and with the member’s best interests at heart. Sadly, it is increasingly clear that this was not the case in relation to many British Steel transfers.”

“While most advisers in the UK provide a valuable service to their clients, the few bad apples involved here have sadly tarnished the reputation of the entire sector. Indeed, negative headlines associated with British Steel will inevitably have hurt trust in retirement saving more generally.

“Among those who are unsure about pensions, scandals such as Robert Maxwell, Equitable Life and now British Steel live long in the memory.

“The focus now has to be on ensuring members entitled to compensation receive it as quickly as possible."

The regulator previously suggested that it was reviewing whether to use its section 404 consumer redress powers, which require a firm to establish and operate a consumer redress scheme where it has seen “evidence of a widespread, or regular, failure by firms to comply with requirements” resulting in consumer losses, in the case of BSPS.

It also previously investigated a number of firms and individuals in relation to the poor transfer advice given to BSPS members, with the FSCS having received over 1,000 claims from former BSPS members.

Concerns have been raised over the FCA's handling of the BSPS transfer scandal, with the National Audit Office recently confirming that it will be conducting an investigation into this, specifically focusing on issues around redress and compensation.

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