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The Financial Conduct Authority (FCA) recently introduced temporary asset retention rules for firms which advised on transfers from the British Steel Pension Scheme (BSPS). These emergency rules took effect from 27 April 2022 and will remain in force until 31 January 2023. This comes following the regulator’s banning of David Stock & Co Limited (DS&C) and AJH Financial Services Limited from disposing of assets without FCA permission.

In this briefing we consider how the FCA’s approach will affect firms involved in M&A transactions.


The FCA recently consulted on plans to award a £71.2 million redress package to former BSPS members who were inappropriately advised to transfer out of their defined benefit pension schemes between 2016 and 2018. To ensure that firms which advised on the BSPS transfers could fund potential reviews and compensate customers, the FCA stipulated that such businesses should maintain adequate financial resources and not make any asset disposals.

In the case of DS&C, the firm was unable to demonstrate that it had sufficient resources to meet potential consumer claims. It therefore failed to meet its regulatory requirements under Principle 4 of the Principles for Businesses.

The regulator has since broadened its approach, using its powers to introduce temporary rules, without consultation, prohibiting firms from undertaking transactions not “in the ordinary course of business”. This includes making gifts, the payment of dividends, payments to connected persons and transfers as part of business acquisitions.

Who do the rules apply to?

Subject to exemptions, the measures apply to firms that provided transfer advice regarding BSPS to more than five consumers. Firms who advised on BSPS transfers are advised to review the FCA’s policy statement PS22/4 to determine whether they fall within the scope of the temporary asset retention rules. Firms within scope must inform the FCA of the outcome of their assessment by 27 May 2022.

FCA's approach

It is evident from the FCA’s statements that the regulator will continue to scrutinise M&A-driven pension plan restructuring. Following the introduction of the emergency measures, the FCA has prevented Alexander David Securities Limited from disposing of any assets without its consent, demonstrating that the FCA will not shy away from taking prohibitive action where necessary to ensure that firms have adequate resources to compensate consumers.

Impact on regulated M&A

The FCA’s ability to block in-scope firms from closing deals that might disadvantage pension scheme members inevitably has wide-ranging implications for regulated M&A transactions. Whilst the rules relate specifically to the BSPS, we are aware that the FCA are paying close attention to Part XII change in control applications where there are any potential legacy defined benefit liabilities.

When acquiring investment advisory businesses, firms should be alert to the prospect that such defined benefit transfer liabilities may be present. In addition, firms should be aware that they may be unable to dispose of assets and / or extract cash from firms by way of dividend or otherwise without the regulator’s permission. This would also impact any restructuring or reorganisation of the business proposed as part of the acquisition.

Acquirers in M&A deals are advised to proceed cautiously when considering pension schemes as potential targets. Firms should fully assess the risks of proposed transactions as part of a thorough due diligence process to ensure that any issues are flushed out at an early stage. Where exposure to advising on DB pensions is identified during the due diligence process, acquirers should seek indemnity cover from the seller, or possibly a change to the deal terms such as a reduced price, retention or deferred consideration.

Whilst it would not be impossible to find a W&I policy which would cover such an indemnity, it is unlikely that any policy would be either readily available or cheap. In such circumstances, acquirers should ensure that they are comfortable with the financial strength of any party providing an indemnity.

The FCA’s approach to DS&C highlights the importance of focussed due diligence and contractual protections in mitigating the effect of potential future FCA action for acquirers when considering targets which have been involved in pension transfers or advising on DB pensions.

With many thanks to Tess Hulton, a current trainee, for her help with preparing this article.

If you require further information about anything covered in this briefing, please contact Andy Peterkin, Edward Twigger, Alex Potten or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2022

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