Implications for PI insurers
The November letter states that whilst consulting on the scheme, the FCA became aware that some advice firms were concerned that their PI policies may not respond to claims in connection to matters recovered by the scheme.
This could be due to a number of issues such as:
- Exclusions for BSPS advice being placed on policies that have renewed since problems with the advice provided to BSPS members were first publicised, or the FCA’s consultation was first announced (PI policies being written on a claims made basis).
- The ‘opt-out’ nature of the scheme may not satisfy notification requirements under some PI policies.
- Issues could arise out of purported block notifications of possible claims arising from the scheme.
- Reduced cover for claims, either due to endorsements for BSPS advice capping or aggregating indemnity limits, or large policy excesses meaning firms will effectively be self-insured for all or part of claims (the FCA predicts the average claim value to be c£45,000).
Given the uncertainty about coverage, coupled with the tight timescales of the review process, the FCA wishes to ensure that the scheme runs as smoothly as possible and is not affected by delays that policy coverage issues can give rise to. The letter therefore sets out the FCA’s expectations of PI insurers.
The FCA is clearly concerned with whether there will be cover for claims that are subject to the scheme. Certainty about coverage supports the FCA’s objective of ensuring customer protection and that markets function well.
The FCA concludes its letter by referring to the new Consumer Duty, stating that its expectations are aligned with the new Principle 12, which requires firms to 'act to deliver good outcomes for retail customers'. In the FCA’s view, confirming PI policies respond appropriately is part of the duty on the firm and insurers to help ensure customers are compensated for any harm received.
Briefly, the FCA expects insurers to give an opinion, without undue delay, on whether the policy is likely to respond, and if not, to provide a summary of reasons for this (together with any other relevant information regarding cover that may be appropriate - for example, the notification process).
The FCA also expects insurers to consider notifications 'promptly and fairly', to communicate the outcomes of notifications to advice firms, and to handle claims 'promptly and fairly'; including the expectation to pay out claims promptly upon settlement.
Further, the FCA encourages insurers (and any third party claims handlers acting on their behalf) to develop or maintain approaches to facilitate and expedite reporting and consideration of claims that may arise, with 'no unreasonable barriers'.
Where policies do respond to claims arising from the scheme, insurers should also be alive to its scope, which relates to advice between May 2016 and March 2018, meaning that at least some claims that would be time barred, appear to fall within its scope.
The six year limitation period runs from the date of the transfer rather than the date of the advice, and whilst implementation of the scheme operates to ‘stop the clock’ for members still eligible for compensation who have not already sought redress to date, PS22/14 does state that customers who transferred before 24 November 2016 may be out of time to complain “unless you only became aware you may have had poor advice after 29 November 2019”. There is therefore still a potential lacuna in respect of those members who were advised and transferred in the six months or so from May 2016.
Current FCA action
Finally, it is of note that on 2 December 2022, the FCA published details of a fine issued to Pembrokeshire Mortgage Centre Limited (PMC) (trading as County Financial Consultants) (in liquidation) of £2,354,331 for advising clients to transfer out of defined benefit schemes. 64% of the clients advised were BSPS members.
It is understood that the FCA is progressing around 30 ongoing enforcement investigations into firms and individuals relating wholly or partly to BSPS advice, all of which are at a very advanced stage and some are in litigation.
The redress scheme comes into effect on 28 February 2023 and is estimated to affect over 300 advice firms and 1,000+ steelworkers, although the latter figure may be an underestimate.
In light of the short timeframe to identify and notify affected former clients, prudent advice firms will be taking steps now to assess their previous advice and, as appropriate, to engage with insurers on whether their PI policy will respond where advice is assessed as being unsuitable.
Where notifications have not already been made, insurers can expect to start receiving notification of, at the least, circumstances that may give rise to a claim, potential block notifications from insured advice firms, and claims.
Insurers should therefore start thinking about the systems and processes they can put in place to ensure that the time taken to process notifications and any policy coverage issues that arise from them is kept to a minimum. This is to avoid prejudice to the advice firm’s position in complying with the FCA’s deadlines for dealing with the scheme.
This is clearly an issue firmly on the FCA’s radar and advice firms (and insurers as appropriate) should take heed and do all they can to comply with their obligations under the scheme as quickly and efficiently as possible.