2021 saw the Financial Conduct Authority looking to deal with a world altered by the impact of Coronavirus.
The pandemic significantly changed how (and from where) many people work, and has had a lasting impact on consumers' financial resilience. This is against an ongoing backdrop of common issues surrounding pension transfers and the consequences of the UK's exit from the EU.
For the FCA, this has raised significant concerns around consumer detriment, with a particular focus on scams and unsuitable investments, as consumers chase higher returns in what is now our second decade of historically low interest rates. For the financial services industry this means even higher scrutiny and more intervention.
The regulator's key concern in 2021 has been ensuring suitable consumer outcomes; perhaps best displayed by the proposed new 'Consumer Duty'.
In the FCA's own words, the intention is that this will "ensure a higher and more consistent standard of protection for users of financial services and help to stop harm before it happens".
Initial proposals for the duty were published in May and the consultation on this will conclude on February 15 2022. New rules and guidance will set out the expectations in detail, but these will include new expected behaviours, along with high-level expectations about avoiding foreseeable harm and acting in good faith.
The imposition of the duty (the requirements of which seem vague enough that it can probably be taken to mean whatever the FCA wants it to mean in a given set of circumstances) follows the identification of companies exploiting consumers' behavioural biases, along with failures around transparency and selling products or services that are not fit for purpose.
This is of particular concern to the FCA in circumstances where the pandemic has led to an increase in the number of adults with low financial resilience, to 14.2m from 3.5m between March and October 2020.
This highlights the FCA's stated belief that companies need to put clients at the heart of everything they do. If businesses fail to do this they can expect unwanted attention from the regulator. Many will probably query what need there is for extra gloss on duties owed when regulated businesses are already under an obligation to treat customers fairly, and precious few will consciously be looking to act against clients' interests.
The focus on consumer protection weaves through the FCA's other activities in 2021; in March, it published guidance that further clarified what it expects of advisors recommending pension transfers. This made a difficult area even more prescriptive, with a heavy focus on the provision of information allowing consumers to make better-informed choices. This also highlighted concerns about high charges following transfers.
The FCA's proactive approach is again demonstrated by the wide-ranging review of the pension advice industry prompted by its concerns. Readers will be aware of enforcement action and a number of past business reviews being imposed, along with further changes to the redress methodology for pension transfers, which has led to increased redress being payable following instances of unsuitable advice.