In his recent speech at the City Banquet at Mansion House, FCA chief executive Andrew Bailey gave a useful outline of where the FCA’s focus is going to land over the coming months.
The FCA is turning the spotlight on three 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 estimates five million people experience difficulties in paying off their balance. Among 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.
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 (with the final report due 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?’
The FCA also wants to look at the role of housing as an investment. It has already published proposals on lifetime mortgages, but the question of how to convert housing wealth into a retirement income (without losing the house) is gaining momentum.
The regulator also 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 of £53.9bn on tax and national insurance contribution relief in 2015/16.
The controversial subject of defined benefits transfers also seems to be occupying much of the FCA’s time. The day before Bailey’s big speech, the regulator published an update on its work on DB transfers, with the damning headline that only 47 per cent of transfers were 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 said to close it the FCA is providing support for innovation in the supply of advice, as well as its work through the Financial Advice Review (FAMR).
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.
Finally, Bailey talked about the provision of financial services to 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.