The Financial Conduct Authority (FCA) has introduced emergency powers to prevent financial advice firms that advised members of the British Steel Pension Scheme (BSPS) from disposing of assets to avoid paying compensation.

The regulator has introduced these rules without consultation, it said, because of fears firms would dispose of assets in the time it took to consult on the rules. The measures will apply from 27 April.

The watchdog's temporary measures apply to firms that advised five or more BSPS members to transfer out of the scheme between 26 May 2016 and 29 March 2018. 

Firms must report to the FCA whether they can meet the potential cost of the BSPS redress. They will have to comply with the asset restriction rules until they confirm to the FCA they have sufficient resources to pay their potential redress bill, the regulator said.

On Thursday 31 March, the FCA proposed firms involved in BSPS transfers would be required to review the advice they gave, identify if it was unsuitable, and calculate and pay redress to consumers where required. It said the scheme would apply to 343 advisory firms.

The paper suggested these would be made up of three large firms, 24 medium-sized firms and 316 small firms. It said about 40 firms, or 10% of those affected, would likely go bust as a result. 

The FCA projected estimate the proposed scheme would mean 1,400 BSPS members receive £71.2m in total redress. 

Alongside the redress consultation, the FCA sent out a Dear CEO letter (first highlighted in December 2021) to advisory firms setting out its expectations that firms who advised BSPS customers should not dispose of, withdraw, transfer, deal with or diminish their assets and any funds they hold except in the ordinary course of business.

The FCA warned that before making any payments, firms should consider their solvency, taking account of any redress or potential redress it may have to make, and the costs of dealing with this. "Being unable to compensate consumers and transferring these costs to other market participants via the Financial Services Compensation Scheme levy is unfair and places an unnecessary burden on other firms," said the FCA in the letter. 

FCA executive director of consumers and competition Sheldon Mills said: "Firms who gave poor advice to British steelworkers must ensure that they retain assets and funds to pay redress under our proposed scheme. We are using these emergency powers today to prevent firms from avoiding paying any redress that is due to their customers and to help reduce the potential burden on the Financial Services Compensation Scheme.

"We will act swiftly if the rules aren't being followed."