CBI survey shows confidence of financial firms is plummeting

The confidence level of the UK’s financial services industry is lower than at any point since the financial crisis of the last decade, according to the latest quarterly survey from employers’ organisation the Confederation of British Industry (CBI).

Optimism levels in financial services have not risen for 15 consecutive quarters, i.e. a period of almost four years.

The regular CBI survey involves canvassing around 80 firms and deducting the proportion who feel less optimistic about the overall business situation from the proportion who are more optimistic.

In the September 2019 survey, around 5% said they are more optimistic than they were in June of this year, and approximately 62% said they are less optimistic, meaning that, when rounded to a whole number, the industry’s overall optimism index is minus 56%. In September 2008 this figure was minus 59% and the minus 56% headline figure from the latest survey is the worst figure that has been recorded for 11 years.

The optimism figure is of course a subjective one, but the survey results on business volumes are also poor. In comparison to the second quarter of 2019, 21% of firms said that business volumes had risen, but 36% said they had fallen, giving a rounded balance of -16%, which is the lowest figure since September 2012. Only 9% of firms expect business volumes to be higher in the final quarter of 2019 and 36% predict business volumes will be lower, giving an overall rating of minus 27%.

The profitability figures are the worst the CBI has reported since June 2009, when the effects of the financial crisis were still being felt. 18% said profits in the period from July to September 2019 were higher than they had been in the quarter from April to June. 26% said their profits had fallen, giving a headline figure of minus 8%.

The most positive news in the survey was the rise in employment. 39% of firms said they had more staff than they did three months ago, while 16% said their headcount had reduced. The headline figure of 23% is the best result for more than a year. However, the good news may be short lived, as the number of firms expecting their employee numbers to rise in the next three months is just 8% higher than the number expecting a fall in staffing levels.

The CBI blamed the continuing threat of a no-deal Brexit for the results. Rain Newton-Smith, the organisation’s chief economist, said:

“Quarter after quarter after quarter, optimism continues to drop in the financial services sector. Add to that the dive in volumes and profits over the last three months, and it’s clear something has to change.

“The sector is the jewel in the crown of the UK’s world-leading services industry. While it’s encouraging that investment plans have improved, the threat of a ‘no deal’ Brexit is hitting confidence.

“The UK Government cannot ignore the voice of this bellwether of the domestic economy and one of the UK’s most important globally competitive sectors. No ifs, no buts, the Government must heed the call to avoid a ‘no deal’ Brexit and secure an ambitious deal with our largest trading partner.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


Significant new appointments at FCA and MAPS

Recent appointments at the Financial Conduct Authority (FCA) include:

  • Marlene Shiels as Chair of the Smaller Business Practitioner Panel, which aims to represent the views of smaller firms. She has served on this panel since 2015 and is Chief Executive of Capital Credit Union
  • Kate Collyer as Chief Economist. The department she now leads provides economic research, analysis and advice to the regulator’s executive committee and board of directors
  • Sheree Howard as the permanent Executive Director of Risk and Compliance Oversight. She joined the FCA as a Senior Adviser in December 2017 and had been carrying out the risk and compliance director position on an interim basis

The Money and Pension Service (MAPS), the UK’s new single financial guidance body, which operates the Money Advice Service, Pension Wise and Pensions Advisory Service brands, has announced 10 appointments to its pension dashboard steering group:

  • Will Lovegrove, founder of Pensionsync, a firm which pioneered the electronic transfer of financial data between payroll software and pension providers
  • Dominic Lindley, an independent financial adviser
  • Andrew Lowe, Change and Data Solutions Director at the Institute and Faculty of Actuaries
  • Francis Goss, Chief Commercial Officer at financial software developer AHC
  • Kim Gumbler, Chair of management consultancy the Pensions Administration Standards Association
  • Nigel Peaple, Director of Policy and Research at trade association the Pensions and Lifetime Savings Association
  • Paddy Greene, Head of Money and Consumer Rights Policy at consumer organisation Which?
  • Romi Savova, CEO at online provider PensionBee
  • Samantha Seaton, CEO at financial software developer MoneyHub
  • Yvonne Braun, Director of Policy – Long Term Savings and Protection at trade association the Association of British Insurers

Chris Curry and Angela Pober had already been appointed to the respective roles of Principal and Implementation Director of the pension dashboard project.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FCA director speaks on its regulation of pensions as a major provider is fined, and HMRC reveals how inadequate some people’s pension pots are

The pensions sector is being closely monitored by the Financial Conduct Authority (FCA) at present and some of the latest regulatory pensions news includes:

Speech warns that pension transfer advice is not of an acceptable standard at present

Deb Jones, Director of Supervision, Life Insurance and Financial Advice at the FCA, began her speech about the regulation of pensions by commenting how much things had changed – 34 million UK consumers are serviced by the pensions sector, and the over 85s are now the fastest growing age group.

Ms Jones alerted her audience to the proposed ban on contingent charging and the other new pension transfer rules. She added that FCA supervisory activities between the introduction of the pension freedoms and September 2018 suggest as many as 69% of people who took advice on a possible transfer were advised to transfer out of a final salary scheme, even though the FCA says a transfer would not be in the interests of most consumers.

This supervisory work has revealed that only 50% of cases result in suitable advice being given, and the regulator estimates that poor pension advice is costing consumers between £1.6 billion and £2 billion each year. The FCA speaker added that the problem is not confined to a few rogue firms either, as 60% of firms recommended that at least 75% of their clients should transfer.

Ms Jones said the FCA would continue to supervise the pensions sector closely “until the pension transfer advice market has reached an acceptable standard.”

Major provider fined over non-advised sales

Although no advice was given, one of the major players in the pensions sector has been fined £23,875,000 for various failings related to annuity sales. Many of its customers who were approaching retirement may have been eligible for an enhanced annuity or may have been eligible for a better rate on the open market for either a standard or enhanced annuity. However, the firm failed to make many of its customers aware of the availability of these enhanced annuities.

The FCA also comments on the firm having “large, sales-linked incentive schemes for call handlers and managers which increased the risk of inappropriate customer outcomes” suggesting that this may have deterred the firm’s staff from giving information about shopping around for the best enhanced annuity.

The provider will now conduct a past business review of non-advised annuity sales in order to identify customer detriment and pay proper redress to customers who are likely to have suffered loss. It has completed this exercise for just 10% of the 183,000 customers who may be affected and £110 million in compensation has already been paid.

Most retirees continue to access their pots without taking advice

The latest retirement income market data from the FCA shows that, in the 2018/19 financial year, only 37% of people sought professional advice before accessing their retirement savings. A further 15% sought guidance from Pension Wise, meaning a significant minority (48%) opted not to seek advice or guidance.

The 2018/19 data is not very different from those reported by the FCA in the previous two financial years. In the 12 months to March 2019 350,000 pension pots were fully withdrawn at the first time of access but 90% of these withdrawals were of £30,000 or less. The average pension pot provides income of £2,500 per year, which is not a large amount, but many people will of course have more than one pot.

HMRC reveals the limited provision the average person is making

HM Revenue & Customs figures show that the average annual pension contribution has fallen to £2,700. This means that, if someone contributes for 40 years, their personal contribution will be £108,000, which is unlikely to provide for a comfortable retirement unless there have also been generous employer contributions to the pension schemes.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FCA holds webinar on how employee motivation can bring about the positive corporate culture the regulator wants to see

Senior figures from the Financial Conduct Authority (FCA) are increasingly talking about the culture within firms. The regulator says that it is often not possible to write prescriptive rules in this area, so good practice examples can be very important in assisting firms to know what a good culture looks like.

Opening a webinar, held on October 4, Jonathan Davidson, Director of Supervision – Retail and Authorisations at the FCA, said he is committed to promoting a culture within firms that provides good customer outcomes.

Instead of the usual webinar panel of financial professionals, the panel for this session comprised an innovation management consultant, a relationship manager at delivery firm Ocado and a representative of research charity the Institute for Employment Studies.

The central theme of the session was that employees must be motivated to act in the right way, which will then hopefully lead to good customer outcomes.

A person’s basic needs might include financial security and a sense of belonging.

On the next level, ideally people would arrive at work with a purpose. Employees want to know how their personal contribution helps the firm achieve its corporate goals, so ideally this should be communicated to them on a continuous basis and not just at each annual appraisal or similar. Indeed, nothing that is said during an annual appraisal, whether positive or negative, should come as a surprise to the employee.

The best line managers have the skills to find out what motivates each individual who reports to them and will tailor their motivational efforts accordingly.

Social media has highlighted one problem in that people sometimes get envious when they see their friends apparently enjoying work more than they are.

It can be important to try and identify a way that all staff could qualify for some form of bonus, and obviously simply achieving higher sales volumes and getting higher pay as a result is not the way the FCA would want firms to operate in the modern world, given the continual regulatory obligation to achieve good customer outcomes.

Firms could consider if more employees could be given development programmes with stated objectives to work towards.

Technology is changing the workplace, and sometimes some management decisions, or decisions about whether to lend to a customer, may now be made by automated tools. However, increased use of technology can also create exciting project opportunities that can be used to give staff greater variety in their role.

Line managers and employees can work together to find ways of doing their jobs better. After all, the junior staff are the ones who are actually ‘at the coalface’ and know what works and what doesn’t, and sometimes one team member will be able to share an experience which their colleagues can learn from. The Maslow hierarchy of needs or a similar model can be used here as employees identify which of the needs in this model are already being met, and which other ones they would like to meet as a priority. Sometimes some experimentation is required to find what really works and what doesn’t.

There are many things that can be offered to try to motivate staff, including:

  • Flexible working
  • Free fruit or snacks
  • Extra annual leave for those who engage in charitable or voluntary work
  • A breakout zone where staff can play games etc.
  • Awards for going above and beyond the usual job requirements – there could be separate categories where some awards are chosen by management and some recipients are chosen via a vote amongst their colleagues.

As far as possible, firms should try to find out what the staff want in the way of perks – the example was given of firms who have offered gym memberships only to find out that either very few of the workforce wanted to take advantage of this, or the ‘discounted’ membership of a high-end gym was actually more expensive than other gyms which staff already used.

At the end of the day, the best ways to monitor the effectiveness of staff motivation are: is the staff turnover low, and do staff come to work with a smile on their face?

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


Trade association holds podcast on debt collection and vulnerability

UK Finance, the trade association for banks and finance providers, recently held a podcast entitled ‘Debt collection and vulnerability – past, present & future’.

The first point covered was that debt leads to additional problems and vulnerability, e.g. mental health issues.

The podcast presenter commented that CONC 7.2.3 in the FCA included a reference as to where firms might find examples of good practice in this area. CONC 7.2.3 says:

“Firms may wish to have regard to the principles outlined in the Money Advice Liaison Group (MALG) Guidelines “Good Practice Awareness Guidelines for Consumers with Mental Health Problems and Debt”.

Many firms have a dedicated vulnerable customer team, who have received additional training, and it is common for the vulnerable customer team to operate as part of the firm’s collections department.

When considering how to treat vulnerable customers, staff in credit firms were urged to consider if they would be happy with their own parent or grandparent being treated in this way.

Some people remain reluctant to explain their situation, perhaps because they think it’s all their own fault, or that nothing can be done to help them. It was acknowledged that firms can’t respond to vulnerabilities if the customer doesn’t show any signs of vulnerability.

Anyone who is in financial difficulty could be vulnerable, so this could mean that everyone who is in contact with a collections department is vulnerable.

Customers could come in and out of vulnerable status several times during their lifetime, so they may be vulnerable at some stages of their relationship with a firm and not vulnerable at other times. Some people’s vulnerability may increase over the period they deal with a firm, e.g. mental and physical illnesses getting worse.

Society is getting older and sometimes people have debts in their eighties, so the vulnerability of the population as a whole is increasing. The high levels of household debt; the rise of ‘zero hours’, the ‘gig economy’ and other uncertain income arrangements; and the increase in the number of people with a gambling problem should all result in an increase the number of vulnerable people.

Firms were advised to check if potentially vulnerable individuals have a preference as to how they should be contacted, e.g. some may find it hard to communicate verbally or to write a letter. The more communication channels a firm offers, the easier it is for a vulnerable customer to find a method that suits them.

Lenders who carry out detailed expenditure analysis should consider whether the expenditure figures obtained from the customer indicate vulnerability, e.g. a large spend on medical costs. Evidence of gambling on bank statements is perhaps a more obvious indicator of vulnerability.

It can sometimes be difficult to get vulnerable people to understand that they may have to pay both their contractual amount and an extra amount to clear their arrears.

It may sometimes be necessary to write off a loan even if it was appropriate for the lender to approve an application at the time. This might be if the amount the customer can afford each month is so low that it would take an unreasonably long time to clear the debt. One of the podcast panellists asked if it was appropriate to accept token payments when the firm strongly suspects that the customer’s finances will not improve over the next 12 months, 36 months etc.

Income and expenditure plans need to be regularly reviewed, and how often these are reviewed should depend on the individual customer’s circumstances.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


FCA chair speaks about how the debt sector and other areas of financial services might respond to an economic downturn

Charles Randell, Chairman of the FCA, spoke at the Gleneagles Pensions & Savings Symposium in late September. The title of his speech was ‘stress testing for human beings’ and the theme of the speech was looking at how different sectors of the financial services industry might respond to an economic downturn.

Action has been taken to make the UK’s banks more resilient in a period of economic difficulty, but the FCA is concerned about whether consumers will be fairly treated by firms when the next recession occurs. Here Mr Randell said:

“The Bank of England’s stress tests have demonstrated that the financial system is now strong enough to support the real economy through a severe recession. But while the system is financially secure, many people are not. So as a financial conduct regulator, we need to think about what an economic downturn means for the human beings which the system is there to serve.”

Using the rule of thumb of a 10-year economic cycle, a recession is already overdue. Statistically, a recession has only just been avoided so far this year, with economic growth in the UK falling by 0.2% between April and June and remaining level between May and July.

No one needs any reminder of the problems in the credit sector in the latter part of the last decade. Debt-related issues formed a large part of Mr Randell’s speech, and here his observations include:

  • The FCA must continue to supervise the credit sector to limit the impact of a downturn
  • Although the FCA has taken steps to improve the affordability assessments for some credit products, and has imposed price caps on other products, all affordability assessments are carried out on the basis that the applicant will keep their job. Mr Randell admitted that there was no other realistic option than for firms to make this assumption
  • An increase in unemployment would lead to an increase in debt arrears, so we can also expect the FCA to closely scrutinise firms’ procedures for dealing with customers in arrears
  • If there was a severe downturn then the Government and other authorities would need to look at how debt advice providers would meet the increased demand – here the FCA chairman welcomed the Government’s proposals to give borrowers 60 days breathing space where their lenders would not take action to recover the debt but would instead allow the customer to seek debt advice and maybe put in place an appropriate debt management arrangement. At this moment, 8.3 million UK adults are said to be ‘over-indebted’, one in eight has no cash savings and one in three has savings of less than £2,000. These figures would undoubtedly increase in a downturn
  • The FCA has already taken enforcement action against firms whose affordability assessments and/or arrears handling practices resulted in harm to their customers. Mr Randell said that the imminent introduction of the Senior Managers Regime in the credit sector would make it even easier for the regulator to identify who within a firm was responsible for failures in these areas

Ways in which other financial sectors could be affected include:

  • An increase in re-possessions
  • People who were planning to sell their homes to pay off interest only mortgages or to fund their retirement might be affected by falling house prices
  • Scammers could use people’s need for short-term cash to persuade them to access their pension when it is not appropriate to do so

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article


Credit agency holds podcast on changes in the credit market

A number of current burning issues in the consumer credit sector were explored in a recent podcast hosted by credit reference agency TransUnion. Software provider OneDoc, trade association UK Finance, Yorkshire Bank and free credit report provider Totally Money were all represented on the panel.

Firstly, it was noted that Application Programme Interface facilities have been implemented as fully as possible in many firms, and UK Finance hope it will assist firms with determining risk and setting prices.

The panel appeared to believe there would be no real benefit were there to be an initiative to introduce a single dashboard of bank accounts and loans, allowing a consumer to see all of their accounts in one place, similar to the new pension dashboard.

Lenders anticipate it will be necessary to obtain more data from customers in the future as regulatory scrutiny increases. Lending firms therefore need to persuade customers that the company can be trusted with their data. Carrying out regular Data Protection Impact Assessments (DPIAs) is vital in this respect.

DPIAs should be conducted whenever a firm:

  • Introduces new products or services
  • Implements a change to its procedures or practices
  • Enters into a new service agreement with a third-party
  • Adopts any form of new technology
  • Decides to collect more personal data from its customers or other stakeholders
  • Changes the way it will handle personal data

A DPIA must always assess the likely impact on individuals’ privacy. A DPIA may sometimes result in a firm deciding not to make the change it was considering, but if a firm does decide to proceed with the proposed change then it must also consider any additional measures it could take to mitigate the data protection risks associated with the change.

Next, it was mentioned that the Financial Conduct Authority is becoming concerned about consumers’ transient lives, for example there are 850,000 people in the UK who are on zero-hours contracts, according to the Trades Union Congress. Other UK consumers may also experience periods of shorter-term unstable employment. It may therefore be very important that a lender establishes just how likely it is that an applicant will continue to earn the amount of income they stated in their application.

Another point raised was that the current application model used by many lenders, i.e. just asking applicants what their income is, may lead to some people giving a figure that is too high. It was suggested that this might be because they don’t realise that they need to state their own personal income and not the full household income.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article