Here, FTAdviser takes a look at the projects and probes the FCA will be undertaking in the next 12 months.
1. Post-April preoccupation.
There are the biggest changes to the at-retirement market in a generation, perhaps ever, and so it comes as no surprise that the largest thrust of work this year will concentrate on monitoring work following the introduction of pension freedoms.
The regulator will review retirement sales practices, including retirement advice, non-advised processes utilised following guidance, and sales practices of pension product providers.
On the provider side, the regulator will be assessing how firms are supporting customers to make the right choices, while it said it is also on the look out to ensure firms do not seek to undermine or circumvent the Pension Wise service in order to retain clients.
On the distribution side, the FCA will plan a follow-up to the market study into the outcomes consumers receive from the products and services they buy at retirement. Advisers have already voiced fears that advice given now could give rise to future claims.
The FCA will review how well the market is working after the reforms and the guidance guarantee have been introduced, looking at advised purchases, reviewing the suitability of advice given, and non-advised purchases.
The work will be launched in early 2016 “once we have a greater evidence base of actual outcomes”.
2. Culture concerns.
Among other reviews being undertaken this year, a number are focusing on areas of financial services culture the regulator has been attempting to change and how these sectors are responding to issued guidance.
Of interest to advisers will be further work into inducements and conflicts of interest, assessing firms’ practices in the wake of guidance issued last year. Given the hefty subsequent fine for Sesame, firms will be aware of the harsh penalties that can follow breaches.
Elsewhere there will be a new thematic review on change programmes in retail and wholesale banks are driving the right behaviour, in particular focusing on remuneration, appraisal and promotion decisions of middle management, and how concerns are reported and acted on.
Staff remuneration and incentives in consumer credit firms also caught the regulator’s attention. It will assess how these firms are managing the risk that their reward arrangements could encourage potentially undesirable behaviours that might lead to poor outcomes for consumers.
3. ‘Dark corners’ of investment.
Steve Webb has warned of concerns over ‘dark corners’ and ‘nasty surprises’ in investments, especially in relation to hidden charges. The FCA is seemingly going to take up the mantle of shining a light on them.
It will launch a market study on asset management in 2015/16. The scope has not been fully developed yet, but issues to be looked at include the charges paid by investors for work such as research - and the factors that drive those charges.
The regulator will also review whether new UK authorised investment funds and segregated mandates are generally being operated in line with its rules, including all documentation, marketing material, disclosure material or investment mandates.
It will also undertake a market study into non-advised sales of investment and protection products.
“We want to see how consumers behave when they are making their own investment decisions and how firms support consumers in choosing products that are suitable for their circumstances.”
4. Mortgage barriers.
The Mortgage Market Review continues to occupy the regulator, with continuing assessment planned on how firms are implementing the rules, including completing its advice and distribution review in the summer and starting its review into responsible lending from April this year.
From this autumn, the FCA will begin a wider assessment of barriers to competition, such as factors affecting consumers’ ability to access credit and ability to switch providers, and barriers to entry or expansion, with a view to launching a market study in early 2016.
It is to be hoped that this work focuses on those borrowers that are being prevented from using transitional rules or are otherwise trapped in existing mortgages, a subject which has been frequently raised on these pages.
5. Insurers’ big data.
Another market study will concentrate on technology developments and specifically how insurance firms use ‘big data’ such as web analytics and behavioural data tools to target customers, including the increasing use of social media, as well as other unconventional data sources.
6. Strategic approach to risk.
Away from the formal review work, in December the FCA said it would take a “more strategic” approach to risk, including a more market-focused view. This year the FCA’s risk outlook was incorporated into the business plan and it announced it will host a risk conference.
7. Forward-looking areas.
The FCA identified has six areas of focus in terms of forward-looking risks it will monitor less formally this year:
• technology undermining firms’ ability to respond to regulatory or consumer needs;
• poor culture and control, including conflicts of interest;
• large back-books leading firms to act against customers’ best interests;
• pensions, retirement income products and distribution methods;
• consumer credit and unaffordable debt; and
• financial crime.
donia.o’loughlin@ft.com
