Today, there is an increased focus on driving the development of modern technology and innovation to better serve the needs of the entire financial services ecosystem - from consumers to industry providers and indeed the state itself.
Technology and innovation are increasingly recognised as essential elements of deploying a more efficient and enhanced environment to help create a healthier savings culture and perhaps also to create a more pro-active attitude towards personal financial responsibility.
This has been highlighted recently from the FCA through Project Innovate and the initiatives therein. The FCA has set out to address some of these potential challenges and are proactively working with the industry in these areas in order to help new (and existing) providers work within the regulations in order to bring new ideas and products to the consumer. All very positive and welcome.
One of the primary areas which the industry as a whole must confront is the ever-increasing cost of compliance. While compliance clearly serves an extremely important purpose, the cost to providers continues to spiral upwards and any increases are ultimately passed down to consumers who bear the weight of higher management fees or other additional charges.
The significant overhead of compliance weighs not only upon the end investors but also, equally as important, acts as a very real and intimidating deterrent to new providers. This simultaneously denies the sector of potential new and innovative providers therefore limiting the range of market choice available to the savers and investors – one of the key areas being addressed by Project Innovate.
However, as a result of the compliance overhead, consumers are forced to shoulder the burden of more than a mere cost burden. Many are being isolated and left to fend for themselves. This is in part because the cost to providers of authorising an investor is now so high that many people with lower levels of savings are being placed in the ‘too hard to do’ box. The relative low profit for providers may not make economic sense and therefore some groups of potential investors may slip through the net, becoming another statistic of the savings gap. The comparison between the process for investing versus the apparent ease with which credit is awarded is an interesting one and perhaps, in part, answered by the innovative use of technology/innovation and the availability and acceptability of central information data stores.
Historically, employers have catered for this group to a greater or lesser extent and helped them develop a sustainable financial future. But, as we all know, the direct responsibility and duty of the employer for their employees, has been diluted over the years.
So, what options are available to the industry to increase the channels open to savers and investors? And how can we as an industry help reduce the cost of compliance for new client take on down to a practical, yet prudent level?
Unfortunately, there is no silver bullet to sweep away all of the problems. One of the potential answers for the onerous nature of client take on and ongoing checks is the digital passport.
The digital passport would consist of a central facility where all the key financial data about an individual – as an investor – is collated into one all-encompassing digital document. These facts would be accessible online and could potentially slash the large overheads which current compliance structures generate for this part of the investment process.
Until change occurs and is implemented, one of the primary challenges the industry faces is reigniting the savings culture by making it easy for people to save very small levels of money frequently. Until this becomes more accessible to all UK consumers, the savings gap will widen.
We hope the FCA’s Project Innovate takes note and considers some of the more dynamic and even the radical solutions.
Kim Holloway is director of engagement of Tisa
