The 26-page business plan, published this morning (April 7), was somewhat dominated by the spreading coronavirus crisis but the Financial Conduct Authority also raised concerns over pensions advice and investment products.
Here are eight things advisers should know about
1 Retirement in the spotlight
The FCA has retirement advice on its radar and said there was a “significant risk of harm” in the pensions market, driven partly by pension transfers and pension freedoms.
Specifically, the watchdog noted the “investment distribution process and support network around it” was not working effectively.
It has outlined three targets for better retirement advice: investment products are appropriate for consumer needs; consumers make effective decisions about their investments; and firms operate under high regulatory standards and act in consumers’ interest.
To help tackle this, the FCA is proposing a consumer harm campaign to help consumers make better-informed investment decisions.
It plans to run this over five years to the tune of £2.3m, which will be allocated proportionately across all fee-blocks in the 2020/21 year.
In terms of measuring its progress on this topic, the FCA confirmed once again it would continue to assess the suitability of defined benefit pension transfer advice and rekindle its probe into decumulation advice, which was paused due to the virus.
Its evaluations of the Retail Distribution Review and the Financial Advice Market Review are still ongoing and the FCA said it would continue to assess developments in the “financial support market” through these investigations.
2 It’s all about value
The City watchdog continues to focus on products and services being good value for money for the consumer, and pledged today to develop a way of assessing whether firms were offering their clients “fair value”.
It had already raised concerns over 'good value' in mortgages, consumer credit, the advice and asset management markets but the new work, which will take place over the next three years, will use measurements and metrics to assess fair value for consumers.
Targets in this remit include products meeting consumer needs at a suitable quality and price, innovation and competition supporting greater value for consumers, and ensuring vulnerable customers are not exploited or targeted with poor value products.
It said: “Fair value for consumers is key to healthy competition and underpins consumer trust in financial services…[and] firms should use data and algorithms ethically to price their products.”
3 Regulation revamp
In the business plan, the FCA also admitted the focus of regulators had too often been on processes rather than good consumer outcomes, and that this had trickled down to what firms prioritised.
The FCA said: “The current framework is too focused on rules and process, and not enough on principles and outcomes.
"We see far too many resources devoted to redress and remediation, and not enough to empower consumers to take good decisions and regulatory action to prevent harm and safeguarding consumers’ financial wellbeing."
It seems set to embark on this mission once the UK leaves the EU regulatory system, noting any future “regulatory framework” would need to reflect what the FCA had learnt through operating in the current system.
4 Small firms under the microscope
The FCA also said today it would be shifting its focus towards the culture of smaller firms.
Culture has been on the FCA’s agenda since the Senior Managers and Certification Regime was rolled out to all firms within its remit last December.
The regulator’s business plan stated: “Firms’ culture shapes the outcomes for consumers and markets, which is why our aim is to assess and address the drivers of culture.
“Over the coming year we will be shifting our focus towards smaller firms…[and] towards those firms which continually fail to meet our required standards.”
5 The ‘f’ word: fees
Today also saw the FCA publish its fees and levies for the year 2020/21, with advisers set to see the amount they contribute to the watchdog rise by 1.6 per cent.
This brought the total advisers, dealers and brokers will have to fork out to almost £81m, up from £79.4m the previous year.
Other costs include the previously reported increase to the Financial Ombudsman Service's levy — although last week this was reduced by £25.4m — and a 21 per cent increase in the pot for the Money and Pensions Service.
The Fos levy will come to £83.9m for the coming year, up £38m on last year, and the Maps levy will be £130m, made up of £24.3m for money guidance, £64.6m for debt advice, and £41.1m for pensions guidance.
6 Some investment scrutiny
Part of the regulator’s plans also include ensuring consumers’ investment needs are met.
The FCA said today harm in the investment sector was caused by poor governance, insufficient focus on good value and a lack of investment in tech and operational resilience.
It wants to see an environment in which investors can choose from a range of high-quality, fair value products and services and there is effective governance within investment firms.
It said: “We want consumers to be able to access and choose from a range of products that are fair value and meet their investment needs.
“We are evaluating how ‘host’ Authorised Corporate Director firms discharge their responsibilities, including in the day-to-day management of funds.”
7 "One FCA"
The FCA also pledged to improve itself, alongside its efforts to improve the quality of the firms in its remit.
It pledged to make faster and more effective decisions to keep pace with the changing world. To do this, it would work towards “One FCA” which could deliver better outcomes from a united front.
On top of this, the regulator said it would prioritise end outcomes for consumers, markets and firms and to be clearer with firms about the outcome it expected them to achieve.
Other goals included making better use of information and data to improve intelligence — including streamlining and digitising regulatory returns — and better coordination between regulators.
8 There could be more to come
The FCA said the coronavirus crisis had made planning ahead “much harder”, so although the business plan set out the priority areas of work for the next three years, the remit could change.
It stated: “Where we can take this work forward now, without diluting our focus on the impact of coronavirus, we will. But it may be months before we are in a more stable position and can focus fully on the activities in this plan.
“Even then, the shape and scale of the issues we need to address may have changed significantly as a result of the virus. We may publish an update to this plan if we believe it is necessary.”
imogen.tew@ft.com
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