Christopher Woolard, Executive Director of Strategy and Competition at the Financial Conduct Authority (FCA) spoke at length on the subject of ‘regulation in a changing world’ at the City of London / Cicero Future of Regulation conference in late October 2019.
In the opening section of his speech, Mr Woolard mentioned that there had been a number of changes to the rulebook in the last decade. All authorised firms are of course all too aware of this, but the FCA director also observed that, in recent years, the public’s expectations of what they deserve from financial firms has increased.
Mr Woolard mentioned three types of regulatory changes that had occurred recently:
- Action taken in response to developing market trends, or as a result of the financial crisis of the last decade. Examples include the stricter capital resources requirements firms now face; and initiatives to increase the accountability of a firm’s leadership team
- Changes that have occurred as a result of technological change, such as artificial intelligence and machine learning initiatives
- Changes in consumer needs, which might include:
- An increased focus on investment returns, especially as rates on savings accounts have been so low for many years now
- A reduction in some consumers’ tolerance for loss
- The ageing population and the fact people now inherit assets later in life as a result
- The reduction in the average level of personal savings
He then expanded on these issues by commenting on the reduction in the number of people who have final salary pension provision, and on the increased choices introduced via the pension freedoms. Mr Woolard observed here that many consumers wanted assistance to guide them through the various options, but at the same time these individuals were unwilling to pay large fees for professional advice. He then acknowledged that many advisory firms were unwilling to take on clients with small pension pots and described the situation as “a stand-off where no one is happy”.
Mr Woolard suggested that many people were focussing on the wrong area when seeking to access their retirement savings, saying:
“Is it any surprise, then, that although regulators, politicians and firms agree that consumers should make informed decisions about their finances in retirement, most end up focusing on their 25% tax free cash, neglecting to make a plan for the remaining 75%?”
The FCA director also commented:
“Consumers now have the option to invest in high risk, high return products, even if they don’t have a sophisticated understanding of those risks.”
His speech then moved on to the Duty of Care debate, where a number of senior figures from the FCA have suggested that a new obligation could soon be imposed on firms, where it would be highlighted that they have a duty to ensure their customers receive appropriate outcomes.
Mr Woolard said that his organisation will be issuing “an open invitation for your thoughts and ideas” to authorised firms and added that there will be a formal consultation on the Duty of Care proposals.
He then listed five elements that could form part of the FCA’s future strategy:
- Identifying exactly what outcomes the regulator wants to see – here he mentioned that, while firms had to make a profit, the FCA didn’t wish to see customers ripped off through excessive charging. However, he added that consumers need to realise investing is not a risk-free activity
- Using the powers granted to the FCA by Parliament – the diverse list of powers that Mr Woolard reeled off included the Senior Managers Regime, Project Innovate, price caps, pension investment pathways and the payment protection insurance deadline campaign
- Working with other authorities, such as the Government and the Information Commissioner
- Reviewing the Handbook and the Principles for Business, for example he said the FCA could consider extending the scope of the Principles, perhaps requiring firms to ensure consumer understanding
- Considering how technology can help deliver positive consumer outcomes
Mr Woolard also spoke about outcomes in his closing remarks:
“We have the opportunity to re-shape how financial services regulation works in the UK. The FCA has a key role to play – improving how markets operate, preventing harm from occurring and serving the public interest. It is only right for us to constantly assess the direction of travel and tailor our approach to ensure we continue to deliver on our objectives.
“To achieve this, we need regulation that is agile and doesn’t become outdated as domestic and global markets evolve, resulting in inefficiencies and consumers being unduly exposed to risk and harm. This requires a bold approach and the full use of tools given to us by Parliament. It also means a focus on simplicity, clarity and real-world effectiveness. By putting outcomes at the heart of the debate in the coming months we want to ensure financial services markets serve the public interest, now and in the long term.”
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