The Financial Conduct Authority (FCA) published its latest Sector Views report in January 2019. This publication encompasses an annual analysis of the changing financial landscape, the resulting impacts on consumers and market effectiveness.
Unsurprisingly, technology issues and the possible impact of Brexit feature prominently in the report, as the FCA looks at the position in seven different sectors:
- retail banking
- retail lending
- general insurance and protection
- pensions savings and retirement income
- retail investments
- investment management
- wholesale financial markets
The regulator says it believes there are four main areas of focus that apply across all sectors:
- technology led changes – do consumers trust new services and distribution channels, such as robo-advice? Can technological progress allow firms to carry out sophisticated analysis of data, and use the results to provide more tailored products and services that can better meet individual consumer needs?
- societal changes and their impact on financial needs of different generations – millennials are struggling to get on the housing ladder and are often affected by the recent sluggish growth in wages; Generation X (born 1966 to 1980) are under pressure to plan for their own retirement while potentially supporting family across both sides of the generational divide; and while many retirees are relatively prosperous, some are struggling to make the right choices regarding their retirement income, especially as life expectancy rises
- the potential impact of Brexit – what will happen here remains very uncertain, even with just two months to go to the UK’s departure date, and firms and the FCA alike may need to plan for a ‘no deal’ scenario
- the macroeconomic environment – GDP growth remains modest, while the prolonged period of low interest rates may have led consumers to invest in riskier products, such as peer-to-peer lending, and they may not be aware of the heightened risks associated with them. Meanwhile inflation has grown faster than wages for much of the past few years, and households are feeling the squeeze, leading some to become more reliant on credit
In the retail lending sector, the FCA observes that the rate of growth of consumer credit lending remains high but has started to slow and there are signs that mainstream credit firms are starting to restrict lending. Steady growth in mortgage lending has been driven by first-time buyers and remortgagers, but the average mortgage term is increasing, with 34% of new mortgages set up for 30 years or more. 75% of all UK adults used a form of credit in the last 12 months. The average 25 to 34-year-old is spending as much as 19% of their pre-tax income on debt repayments. The FCA remains concerned about the advice standards in debt management firms.
In the general insurance market, the FCA welcomes the fact that more customers are shopping around rather than automatically accepting their renewal quote. Many customers believe that their policy documentation is not ‘user friendly’.
In the pensions sector, the report comments that although many more people are now in workplace pensions – largely because most employers are obliged to provide one – overall contribution rates remain low, and that many people are not saving enough for a comfortable retirement. A large proportion of retirees withdrawing cash from pension pots are choosing to re-invest it in non-pensions vehicles, which is unlikely to be to their advantage. The FCA remains concerned about the threat posed by pension scams.
In the retail investment market, the report states that, excluding pensions, only a third of the UK population hold any form of investment product, whether regulated or unregulated. Knowledge of investment vehicles remains low amongst the general population, but only a third of UK adults trust financial advisers to work in the best interests of their clients. Unsuitable advice on workplace pension transfers is one of the areas of greatest potential concern with respect to advised sales, and indeed the FCA has made clear its concerns in this area over an extended period.
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