Almost 2,000 independent financial advisers face potential fines totalling pounds 500,000 from their watchdog for refusing to fill in forms needed to compensate victims of the personal pension scandal.
The advisers also risk being suspended from operating unless the forms are completed and sent to the Personal Investment Authority within the next six weeks.
The PIA's long-awaited crackdown follows months of unsuccessful efforts to cajole advisers into carrying out reviews of any pension transfers and opt-outs they may have been involved in.
As a result, the PIA's stated aim of reviewing most of the 350,000 urgent cases before the end of December - some of the 1.5 million people who may have been mis-sold personal pensions - no longer looks achievable.
The PIA's inability to deliver on assurances made in the spring prompted the Securities and Investments Board, the City's most senior regulator, to abandon until next year its own promised follow-up of the number of cases being dealt with.
Advisers are being asked to fill in a special form giving the number of transfer and opt-out cases they were involved in. Thereafter, advisers must review each case to see whether compensation is necessary.
A PIA spokesman said yesterday: "There has been a high level of [insurance companies], almost 100 per cent, who have completed the first stage of their review. The response from IFAs remains in the order of 50 per cent.
"Letters are being sent out to inform members that unless they send in the forms by 14 January, they face an administrative surcharge of pounds 250 each. They also face the prospect of further disciplinary action." Among possible sanctions is that of being suspended from PIA membership, preventing a firm from trading.
The PIA's belated get-tough policy is the culmination of a long-standing row with its members over pension compensation. IFAs argue that if they do as they are told by their watchdog, they risk losing the professional indemnity cover needed to meet claims against them for alleged mis-selling.
Indemnity insurers say that if they let advisers do what the PIA tells them, they are in effect inviting their clients to sue them, thereby triggering compensation claims worth hundreds of millions of pounds.
The row comes as the cost of compensating victims of the scandal, once estimated at pounds 4bn, is being revised steadily downwards. Last week, insurers were told by the Treasury that the cost of reinstating public sector staff into the pension schemes they were enticed out of would be cut. The reduction in costs, agreed with the government Actuaries Department, could reach pounds 500m and was announced despite dissent among some senior civil servants.
One said: "This is a policy issue in which it is possible to take quite different attitudes to insurance companies. But ministers have taken the view that a resolution of this issue could be found in a way that must avoid excessive costs falling on the insurance industry."
Penny Webster, a partner and actuary at Bacon & Woodrow, said: "The Government has not been ungenerous but it is a fair deal."Reuse content