The Financial Conduct Authority (FCA) has published its annual Sector Views, an assessment of the risks and potential harm to consumers across financial services markets.
The Sector Views look at the impact of macroeconomic developments and common drivers of change emerging across financial markets. They also outline areas where there may be a negative impact on consumers or the integrity of the financial system in that sector. The report sets out what factors are driving harm, as well as considering how the harm may develop over time.
The FCA has highlighted the following areas of concern:
- Although the FCA has seen a number of positive corrections in the credit market, our Financial Lives data shows that 7.4 million UK adults are over-indebted and find their financial commitment a burden.
- Pricing practices in insurance still penalise loyal customers – the ‘loyalty penalty’ in home and motor insurance cost 6 million longstanding consumers an extra £1.2 billion in 2018, and the FCA is finalising remedies following its market study.
- High-risk retail investment products are exposing consumers to more risk than they can absorb – some of the highest risk products are often marketed directly to retail consumers with poor communication of the risks involved and implications that the investments are regulated when this is not the case.
- Many new payments firms have been able to enter the market and grow quickly, but some of their products don’t have protection in place for consumers, for example, e-money services advertised as ‘current accounts’ aren’t covered by the Financial Services Compensation Scheme.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA and interim Chief Executive designate, said “We are committed to reducing harm in the markets we regulate. Our analysis of markets ensures that we do this effectively, helping us to decide where to focus our attention. We expect firms to be similarly focused on preventing harm and assisting us where they can, and we will continue to actively supervise all firms to ensure they achieve this.”
“What is clearly apparent from the Sector Views, is that many of the harms we are seeing are created by a significant number of smaller firms we regulate or firms beyond our remit.”
“The findings in the report will contribute to our upcoming Business Plan and the decisions we make affecting consumers, market integrity and competition.”
In response to the FCA’s annual Sector Views, Freddy Kelly, CEO and co-founder of Credit Kudos, said “We’re not surprised to see the Financial Conduct Authority (FCA) highlighting consumer credit as an area of concern – particularly around lending to those who can’t afford to repay. Unfortunately, many lenders still assess creditworthiness based on traditional credit report data which can be inaccurate and up to 60 days out of date. This means someone applying for credit could have taken out multiple high cost loans in the past week and a new lender would be completely in the dark.”
“The current method of assessing creditworthiness must change if we are to prevent people getting caught in a spiral of debt. By using open banking data, we can provide lenders with much more accurate, up-to-date information to show whether someone can truly afford to repay. We also hope the FCA’s Credit Information Market Study will include recommendations to tackle this issue of poor quality credit report data.”