British Steel Pension Scheme – FCA ‘Dear CEO’ letter to professional indemnity insurers

On 28 November 2022, the FCA published Policy Statement PS22/14 setting out details of the redress scheme (the scheme) implemented for former members of the British Steel Pension Scheme (BSPS) under s.404 of the Financial Services and Markets Act 2000.

At the same time, the FCA issued a ‘Dear CEO’ letter (the November letter) to professional indemnity (PI) insurers and brokers that arranged cover. The letter sets out its expectations of PI insurers (and brokers) of firms who gave pension transfer advice to members of BSPS between 26 May 2016 and 29 March 2018.


The BSPS scandal arose after over 7,800 members transferred their pensions out of the BSPS based on advice from financial advisers (advice firms), following financial difficulties suffered by BSPS’s principal sponsor, Tata Steel UK.

Since then, transfers out of the BSPS have been the subject of review. On 22 December 2021, the Financial Conduct Authority (FCA) announced a consultation on a redress scheme for members who transferred from BSPS. It published its consultation paper in March 2022, suggesting that 46% of the transfers were based on ‘unsuitable advice’.

This coincided with a ‘Dear CEO’ letter being sent to advice firms emphasising the requirement to have adequate assets to pay any compensation due. In April 2022, the FCA imposed new emergency asset retention rules, in light of concerns that some advice firms were attempting to dispose of assets to avoid paying compensation to affected steelworkers. By August 2022, 101 advice firms were placed under the scope of the rules, in place until 31 January 2023.

Since the scheme was published, the FCA has reiterated the requirement for firms to assess the adequacy of their financial resources to meet any potential liabilities arising from unsuitable advice, including consideration of the availability of any PI insurance cover.

The Redress Scheme

The scheme is estimated to affect over 1,000 BSPS members who received unsuitable advice to transfer out and will start on 28 February 2023. Advice firms have until 28 March 2023 to notify all relevant former clients that they will review their file, unless the member opts-out. They are then required to assess the advice they provided and communicate the outcome by 28 September 2023.

If the advice was unsuitable and financial loss was suffered as a result, the advice firms will be required to offer compensation by 28 December 2023 (or 28 February 2024 for those seeking payments into their pension). Customers of firms no longer trading can make a claim to the Financial Services Compensation Scheme (FSCS). Those notified that advice was suitable have the option to refer their cases to the Financial Ombudsman Service (FOS).

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.

Related items: