Last week (18 February) the Financial Conduct Authority (FCA) published its annual Sector Views, looking at areas of concern in the financial services industry.
What do they tell us about areas of risk and harm in the sector? How should the regulator’s view influence firms’ approach to regulatory compliance? We explore the issues raised.
What are the FCA’s sector views?
The Sector Views are published annually, and provide ‘an assessment of the risks and potential harm to consumers across financial services markets’.
The FCA’s Sector Views cover all the markets regulated by the Authority:
- Retail banking
- Retail lending
- General insurance and protection
- Pensions savings and retirement income
- Retail investments
- Investment management
- Wholesale financial markets
They look at how each sector has performed, based on data available and the FCA’s views at mid-2019. The regulator uses them to set and review priorities, and to focus its resources, as well as to inform its business plan and the decisions it makes on regulation.
The 2020 Sector Views can be seen here.
What are the key areas of concerns identified?
Summarising the 2020 Sector Views, the regulator picks out some areas of particular concern:
- 7.4 million UK adults are over-indebted and find their financial commitment a burden – although as the regulator says, it has seen ‘a number of positive corrections in the credit market’
- Pricing practices in insurance still penalise loyal customers – the regulator calculates that the ‘loyalty penalty’ in home and motor insurance cost 6 million longstanding consumers an extra £1.2 billion in 2018
- High-risk retail investment products are exposing consumers to ‘more risk than they can absorb’, often being marketed direct to retail customers with ‘poor communication of the risks involved and implications that the investments are regulated, when this is not the case’
- While many new payments firms have been able to enter the market and grow quickly, some of their products don’t have protection in place for consumers, for example e-money services advertised as ‘current accounts’ aren’t covered by the Financial Services Compensation Scheme
Challenges in the UK financial services market
These concerns sit against a variety of challenges and opportunities currently facing the UK’s financial services sector:
- Brexit – identified as both a threat and an opportunity
- Global issues such as US-China trade tensions and the coronavirus
- Demographic and societal changes, like increased longevity and higher levels of student debt
- The growing importance of environmental and sustainability issues
- Technology, which is changing the way some consumers are interacting with and using financial services
How should firms respond to the challenges they face?
Many of the challenges UK financial services firms currently face – Brexit; global financial markets; the potential economic impact of the coronavirus – are out of their control.
But in many cases, there are steps businesses, and their Compliance teams, can take to mitigate their impact.
- If you’re an insurance firm, a sector that has been criticised for penalising loyal customers, read up on what the regulator is doing to tackle this loyalty penalty.
- Understand the Authority’s latest advice on how firms can prepare for Brexit.
- If you operate in the consumer credit market, familiarise yourself with the regulator’s approach to regulating the sector.
- Make sure your financial promotions and customer communications are fair, clear and not misleading – to ensure you don’t risk misleading consumers about your regulated status, pricing or other issues.
- Make sure you are making the maximising the potential of technology and innovation – without jeopardising compliance.
Having an understanding of the regulator’s areas of focus will put you on the front foot when it comes to compliance. You can find the full Sector Views here if you want to read them in detail.
An ever-changing sector
The 2020 Sector Views reflect an industry facing significant change. As a Compliance professional, you need to carry out your role within an ever-shifting landscape.
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