Whenever the regulator offers a list of their specific areas of focus, I fear that eyes avert from whichever compliance ball they might have been on previously and instead take a more focused look in the direction the FCA asks.
And rightly so, in many ways. Otherwise it’s a bit like being told what your exam questions are going to be and then failing to revise those topics.
The FCA’s risk outlook may not have come as a huge surprise to many of you. It says it’s going to look at the risks that arise relating to: technology, questionable cultures and sales tactics, disincentives over back books locking customers in to unsuitable arrangements, overly complex retirement income options (even more prevalent now, given the Budget fallout), increasingly complication consumer credit, onerous small print and house prices.
Obviously the ‘key’ risks won’t be all inclusive. Were the risks by using off-the-shelf outsourcing solutions mentioned? No. Has the FCA got sufficient reason to shine a light on disappointing investment outcomes due to unsuitable investment products? No, and Dennehy Weller & Co's MD Brian Dennehy thinks the regulator’s head remains in the sand in that area.
Patrick Connolly of Chase de Vere said many of the issues were ongoing, which raises the question over why the FCA described its hit list as the “emerging” risks and how firms should consider how these issues will affect their businesses.
"The back book issue is particularly pertinent to the pensions industry, whereby people aren't necessarily offering the fairest deal to their long-standing policyholder. There may be cases of them leaving people in entirely unsuitable [plans] and the recent flexibility offered on pensions has highlighted this further, putting additional pressure on [providers] to reduce exit charges or offer people the right exit route to their pensions contracts."
The FCA said it will work with firms in terms of how to address these risks and help ensure consumers’ interests were put first.
While the general behaviour and cultural issues remain – the FCA obviously keen to keep its reputation as squeaky clean as possible, given all the work it has done to smarten things up with the RDR – there is general oversight of the protection gap, according to KPMG’s head of conduct risk, Tim Howarth.
While the UK’s pension shortfall has been flung into the spotlight with the recent annuity overhaul, protection is still too-far down most consumers' to do lists and Howarth warns that the FCA needs to articulate its concerns over this space.
There's little logic behind the areas the regulator chooses to show its teeth to and those it avoids.
Perhaps it’s selected its top seven as those the most achievable. Hence a harder look at fund suitability, charges for investment solutions and measurability of outcomes or tackling the savings culture generally might have been too tough a nettle to grasp this time around.
Connolly said while the focus on poor culture was encouraging, he said things had improved dramatically.
"The financial services industry is seeking clarity,” said Howarth. “Therefore, if the FCA outlines its long-term expectations, the industry can set its long-term strategy, define its risk appetite be able to deliver the right products, at the right price and at the right time to customers – without the constant concerns of an ever-changing regulatory landscape. This would be good for the economy, consumers and shareholders."
As with all these things, if often takes things to get worse before they can get better, so perhaps these are the 'most bad' areas the FCA is lying awake at night stressing over. What do you think?
