FCA to focus on pension exit fees and risky lending

The Financial Conduct Authority has cited pension exit fees and high-risk lending practices as key areas of concern in the year ahead that could be subject to formal supervisory work.

The 2014/2015 risk outlook, published alongside the FCA’s business plan, shows which conduct and prudential issues the FCA will be focusing its attention on in the year ahead.

In particular, costly exit fees may mean consumers remain trapped in poor value products, the regulator states, while it also has concerns about house price growth encouraging firms to lend to riskier borrowers.

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The regulator fears consumers could find that they’re unable to manage higher payments if interest rates rise.

Christopher Woolard, director of policy, risk and research at the FCA, said: “By highlighting issues that could affect a number of consumers early, firms can take steps to address them before the damage is done.

“As well as the importance of being alert to emerging risks and adapting to the changing economic situation, this work highlights the need for firms to embed good conduct.

“As a forward looking, judgement-based regulator understanding where risk develops, helps to prioritise areas where we should intervene, and links to the work we will undertake this year.”

Seven areas are highlighted for the regulator to examine.

Alongside exit fees and risky lending, it highlighted rapid technological changes that could lead to “over-reliance on third parties to provide and oversee IT systems”, or open up new opportunities for fraudsters to engage in financial crime.

It also said it will look at firms with large back books are warned they are to be examined by the regulator, which has concerns they have an incentive to act against the best interests of consumers.

For example, the regulator warned large firms may take advantage of big data to re-price products or change terms and conditions, or cross-subsidise products for new consumers to undermine competition.

The FCA also raised concerns that consumers may be getting a poor deal from complex, opaque or overpriced retirement income products, with hidden charges or fees that make it difficult to compare options across the market.