The FCA’s focus

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Andrew Bailey, Chief Executive at the FCA, gave a speech recently at the City Banquet at Mansion House, where he gave a useful outline of where the FCA’s focus is going to land over the next few months.

The FCA is turning the spotlight on three areas it thinks are the big public policy issues facing the UK today – consumer credit; long-term savings and retirement provision; and an ageing population.

The dramatic rise in consumer debt is causing concern in Canary Wharf. The FCA reckons five million people experience real difficulties in paying off their balance. Amongst other things, it’s concerned credit cards have become a source of long-term expensive debt, something they weren’t designed for. So, it’s proposing measures to reduce the number of people with persistent credit card debt. Bailey also defended the FCA’s position not to intervene in the expanding car finance market.

Long-term savings and retirement is another key theme. The FCA will publish its pension strategy later this year setting out its assessment of the major regulatory issues in the sector. And there are several interesting elements surfacing:

  • Decumulation is already receiving a lot of air time – given the FCA’s own Retirement Outcomes work (it’s due to publish the final report next year) and the Work & Pensions Select Committee’s inquiry. The FCA’s focus is going to affect provision of drawdown (even for advised clients), but it may also mesh into the bigger question of ‘are pensions freedoms working in the right way?’.
  • Still on retirement income, the FCA wants to look at the role of housing as an investment. It has already published proposals on lifetime mortgages, but how to convert the housing wealth into a retirement income (without losing the house) is gaining momentum.
  • The FCA has concerns about low savings rates. It’s hoped the automatic enrolment review, due at the end of the year, will help tackle this. However, there is a tension in that the Treasury recently reported an increased spend on personal pension tax relief (£53.9bn on tax and national insurance contribution relief in 2015/16).
  • The controversial subject of defined benefits transfers also seems to be occupying the FCA’s time. The day before Bailey’s big speech the FCA commented on its work so far on defined benefits transfers, with the damning headline that only 47% of transfers were what it deemed suitable. Reading between the lines, the FCA is peeved advisers aren’t paying heed to its previous instruction to consider the individual’s circumstances and the destination of the funds. There’s no doubt the FCA will have a lot more to say on this area.
  • Bailey acknowledged the advice gap and outlined to close it FCA is providing support for innovation in the supply of advice, as well as FAMR (financial advice market review). As part of this it wants to provide clarity on the boundary between advice and more general guidance. The FCA believes the more uncertain the boundary the more advisers aim to keep away from going nearer to it.

Bailey completed his Mansion House gig by mentioning the provision of financial services and the ageing population. This strand of work follows on from the FCA paper published a few weeks ago.

Bailey identified two changes that are presenting ‘challenges’. The first is the switch from physical to digital access. The second was firms’ growing access to Big Data. The FCA is concerned firms are going to use this mountain of information to identify and exploit customers who are less likely to monitor the market to get the best pricing.

The upshot is there is going to be a bigger emphasis on services to this sector of the population.

So, lots to keep the FCA – and us all – busy over the next year.

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