10 December 2024
3 min
This summary is intended for insurers, reinsurers, asset managers, banks, and building societies only. It is published for informational purposes only and does not constitute advice.
The FCA has recently come under criticism from the All-Party Parliamentary Group on Investment Fraud & Fairer Financial Services[1], who called into question the watchdog’s competence and integrity. The FCA, understandably, has strongly rejected this characterisation, referencing recent lessons and a transformation of the organisation. Whether you are an impartial observer, or have already taken a stance on the performance of the watchdog, it is difficult to argue that we've experienced a ‘tornado’ of recent regulatory activity.
The strongest conduct related headwind introduced in recent years has been the Consumer Duty. Since the Duty’s launch, the FCA announced proposed measures to begin naming firms earlier in the process of its enforcement investigations[2]. This whipped up a storm of criticism within the sector, with firms arguing that it would be irresponsible to name firms before fault had been proven and a resolution agreed. Having also attracted the criticism of the Treasury Select Committee, the ‘name and shame’ proposal is being revised[3]. This will provide more notice to firms, including the opportunity to contest the decision, and outlining the criteria applied when deciding whether or not to use these powers.
The level of regulatory consultation or publication that can take place after the announcement of the General Election is limited. However, once the new Labour government was in place, the FCA wasted little time launching its latest round of publications including the Pure Protection Market Study (MS24/1.1)[4], updates to the Value for Money Framework (CP24/16)[5], and an update on the Advice Guidance Boundary Review (AGBR)[6].
The new Chancellor of the Exchequer, Rachel Reeves, has written to the FCA[7] recommending an increased focus on supporting the “growth mission” for the UK, which suggests further embedding of the secondary international competitiveness and growth objectives. The letter also suggests that informed and responsible risk-taking should take place by both authorised firms and customers, with Reeves going as far as to request positive engagements, with the FCA to become a “responsive” and “agile” regulator that supports innovation.
So, with the yellow brick road set, what might we expect to see and hear from the FCA in the months ahead?
The FCA’s work preventing harm often goes unseen, especially where it prevents harm from crystallising, while perceived failures to protect or remedy have been quick to attract criticism. The FCA will need to demonstrate courage and embrace a greater appetite for risk, to facilitate informed and responsible risk-taking.
Far from cowardly, the Consumer Duty is a bold new piece of regulation, raising the expectations of firms to deliver good customer outcomes, and evidence of these. Among the many I have spoken to about the Duty, I’ve been pleased to hear evidence of cultural shifts, removing the barriers of cost or materiality and tabling efforts to deliver better outcomes to consumers with senior stakeholders. For firms that may not be evidencing cultural shifts, or positive changes for consumers, the FCA has indicated its appetite to impose a skilled person review[8] to evidence compliance.
Asking firms to be bolder, to allow consumers to take on more risk through informed decisions, may require a leap of faith from the financial service industry, particularly those sectors that have lived experience of mis-selling scandals or significant redress schemes. There remains a gap between the regulatory messaging to focus on outcomes, regardless of contractual terms, and the legal risk appetite required for firms to act on this.
On the topic of redress, at the time of writing, the FCA has an open Call for Input (CfI) on Modernising the Redress System[9], issued in conjunction with the Financial Ombudsman Service (FOS). This CfI seeks views on both the operational implications for firms and the potential impact on outcomes for consumers. One topic of note is the role that claims management companies and other professional representatives (PRs) have in delivering good customer outcomes for consumers. Policyholders have a right to complain and, if dissatisfied with the outcome, to subsequently take that complaint to the FOS. PRs have no further rights or powers than consumers in this process, so there is a balance to consider between the additional awareness and support navigating the process against the fees being levied, which can prove significant in some instances. The FCA is seeking views from both sides of the debate, and I would urge anybody involved in delivering mass redress exercises to contribute their views ahead of 30 January 2025.
The FCA has also published findings from a recent multi-firm review of life insurers’ bereavement claims process[10]. This highlights extended customer journey times for the bereaved family to receive payments. There are a number of reasons these processes take time; being complex or difficult to navigate, or the bereaved party’s emotional vulnerability and willingness to engage with the process. When high-value sums are involved, firms are also more cautious of potential fraud, introducing friction in order to protect consumers and reduce financial crime. Perhaps unsurprising, therefore, that Guaranteed Over-50s plans (GO50s) had the fastest claims handling times with their lower-value benefit amounts and lack of medical underwriting leading to simpler claims processing.
Meanwhile, the GO50s market has come under fire as part of the FCA’s planned Pure Protection Market Study. The GO50s product may be considered as an alternative to funeral plans, providing a comparable cash benefit, without the added (help or hindrance of) funeral arrangements. The product is largely sold through distribution channels, where commission scales have raised some eyebrows looking at the ‘price and value’ provided. While it is difficult to place a value on ‘peace of mind’, protection in the early years of the policy generates much of the product’s utility. Consumers who live longest may pay more in premiums than the benefits ultimately paid to their next of kin, which can lead the bereaved to complain, particularly where the assured has not discussed the arrangements with their family.
The proverbial ‘brain’ in this story is the ongoing effort to close the advice-gap, with only 31% of plan holders accessing pension pots for the first time having received regulated advice[11]. The latest tool the FCA seeks to leverage is the Advice Guidance Boundary Review (AGBR) .
The AGBR was launched for consultation back in December 2022, with the most recent update shared on 15 November 2024. This confirmed an initial focus on the retirement journey and indicated a further consultation paper will be launched before the end of 2024 to explore the approach that can be taken in this sector.
This could revolutionise the way firms communicate with consumers, developing archetype journeys for consumers with common characteristics to develop greater engagement with their financial products, without falling foul of regulated advice requirements. I encourage firms to respond to this consultation, attend roundtables and help the regulator develop recommendations that work for consumers and firms alike.
The government’s Pensions Review[12] on retirement adequacy has the potential to drive significant improvements to how consumers engage with their retirement savings. The FCA will be a pivotal part of any solutions proposed, in its role of supervising insurers and other retail investment providers and distributors.
The FCA has a broad remit, preventing and remedying harm and supporting growth and innovation. The rules and legislation that the FCA needs to work within, can result in it appearing opaque or unhelpful from the outside looking in. In truth, there is no telling how much harm the FCA has managed to prevent coming to pass over the years. Once harm has occurred, the limited powers and funds available to the FCA mean there will inevitably be a negative sentiment among the individuals impacted.
While the watchdog has come under fire, the strength of the UK financial service market, including the confidence and protection afforded to consumers, is in no small part to the efforts of the FCA, and the FSA before it.
As we all navigate the new regulations, consultations and guidance over the coming months, I have high hopes that the FCA will demonstrate that they have the courage, heart and brain all along. Pay attention to the man behind the curtain - while miracles may be expected, the reality is that the regulator is on a journey of its own.
Hymans Robertson can provide a wealth of experience to support our clients navigating regulatory issues including those considered within this article. We can provide resource support at all levels of seniority to assist in implementing or evidencing compliance with FCA rules, including through skilled person reports. For more information, please get in touch or reach out via your usual Hymans Robertson contact.
This summary is based upon our understanding of events as at the date of publication. It is a general summary of topical matters and should not be regarded as financial advice. It should not be considered a substitute for professional advice on specific circumstances and objectives. Where this blog refers to legal matters please note that Hymans Robertson LLP is not qualified to provide legal opinion and therefore you may wish to obtain independent legal advice to consider any relevant law and/or regulation. Please read our Terms of Use - Hymans Robertson.
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