‘Ensuring good consumer outcomes’ is the theme that runs through the new FCA annual report.
The report also emphasises the rollout of SM&CR to all firms from December 9 2019 and states that the finalised rules for this have already been issued.
Linked to the idea of good consumer outcomes is the FCA’s continued emphasis on firms’ culture, and here FCA speakers have repeatedly urged firms to ensure they ‘do the right thing’ even where there is no specific FCA rule or principle. The FCA’s four drivers of culture are:
• Approach to rewarding and managing people – here the FCA has recently conducted a number of studies looking at whether the existence of commission payments encourage firms to act in a way that is contrary to customers’ interests
• Governance (including systems & controls and oversight of the business)
The FCA says:
“Our aim is to transform culture in financial services firms, so that firms cause less harm to consumers, businesses and the real economy.”
Besides the culture and governance of authorised firms, the report says that the FCA’s cross-sector priorities for the next 12 months are:
• Financial crime, including money laundering and scams
• Data security, resilience and outsourcing, including whether firms have measures in place to protect against a cyber-attack or other service disruption, and whether they also have adequate plans for responding to a service disruption. The FCA received 229 reports of incidents in 2017/18, of which 44 were cyber-related, and these figures rose to 916 and 152 respectively in 2018/19 but the FCA suggests this large increase was primarily due to firms becoming more aware of the regulator’s expectations
• Innovation and technology – whether greater use of technology is increasing the risks of fraud and misuse of data
• Treatment of existing customers – here the FCA says “existing customers should not be disadvantaged by receiving poorer service or paying higher charges”
• Long-term pension and savings issues and inter-generational differences
Regarding high-cost credit, the report makes mention of the rent-to-own price cap, measures taken to reform the overdraft market and restrictions on repeat borrowing in the home credit sector. There is no indication in the report however of whether the FCA will look to introduce price caps in other sectors in the next 12 months.
The FCA then repeats its assertion that some lenders are making profits by lending irresponsibly and are using unaffordable lending to subsidise those who repay on time. Re-iterating the focus on culture and consumer outcomes, the report says that FCA supervisory work in this area will look at whether lending decisions are leading to good customer outcomes.
The credit section of the report does not provide any new guidance, but does once again refer firms to Policy Statement 18/19, particularly with regard to:
• The distinction between affordability and credit risk
• Ensuring that credit assessments are proportionate
• The role of information about consumers’ income and expenditure
• The need for clear and effective policies and procedures
Debt managers are warned that some firms need to display “significant improvement”. The FCA is particularly concerned about firms’ identification and treatment of vulnerable customers and the quality of advice given to customers who seek advice together, such as couples.
In the retail investment section of the report, the FCA highlights that complex investments, pension transfers and disclosure of fees and charges will remain an area of priority.
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