FCA misconduct enforcement shows new demand for proactive redress

The FCA banned Paul Steel, of Estate Matters Financial Ltd (EMF), from working in financial services. Steel provided unsuitable advice to customers to transfer out of defined benefit pension schemes, including the British Steel Pension Scheme (BSPS).

In a rare move, the regulator imposed a fine of £3,694,400 on Steel, but agreed not to enforce it on the condition that he pay £850,000 – effectively all of his remaining assets – to the Financial Services Compensation Scheme (FSCS). The FCA said that the settlement would ensure that most or all of Steel’s assets would be spent compensating consumers, rather than on High Court proceedings.

Financial regulatory expert Hannah Ross of Pinsent Masons said: “This latest enforcement action further demonstrates the regulator’s approach to enforcement action in cases involving consumer harm. Firms should take note that the FCA is not simply focusing on Steel’s failure to provide suitable pension transfer advice, but also relying on the principles of honesty and integrity – and the impact such a breach has on vulnerable consumers.”

Ross added that firms should expect to see the regulator’s focus on high-level principles and achieving good outcomes for consumers increase once the Consumer Duty comes into force on 31 July 2023.

The FCA also said Steel failed to act with honesty and integrity when he improperly sold the firm’s assets for less than their value - to himself - so that he could enjoy the profits of the business without the burden of the risks that he had created. Doing so also meant that customers who had lost out from the poor advice could not pursue EMF for redress.

Therese Chambers, joint executive director of enforcement at the FCA, said: “We are determined that those who fail in their duties to their customers take responsibility for paying towards redress and do not expect the FSCS, and the vast majority of firms who do the right thing, to pick up the tab for their failings.”

The announcement comes after Chambers urged firms to “do the right thing” in a speech last month that set out the FCA’s approach to enforcement. She said firms that had given unsuitable advice to their customers could avoid financial penalties if they “took responsibility” and put a “proactive redress exercise” in place quickly. Chambers said that all too often, firms refuse to cooperate with the FCA and “duck and dive” to avoid remedying control failures and “making things right.”

Jonathan Cavill of Pinsent Masons said: “Against this backdrop, firms should be considering how they should proactively and promptly put things right when regulatory compliance issues are identified. More broadly, firms will also be aware of proactive investigation and remediation obligations covered in the Consumer Duty.”

“The regulator’s focus is again on ensuring firms in breach of their regulatory duties contribute towards consumer redress. The FCA is determined that non-compliant firms take responsibility for their actions, so that the FSCS and firms that are acting properly do not end up paying for other’s breaches,” he added.