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10 big regulatory risks on the FCA’s radar

Martin Wheatley 480 profile

The Financial Conduct Authority has today set out its first annual risk outlook giving an indication of the new regulator’s focus.

Here we outline 10 big areas of risk it will be watching in 2013:

1. Complex charging structures

Despite the introduction of the RDR the FCA is concerned about conflicts of interest among advisers and intermediaries leading to higher charges. It will keep a close eye on fees and charges for pensions and long-term savings advice as well as launching a review into fund management charges.

2. Bank sales incentive schemes

The FSA launched its first crackdown on sales incentives last year and shows no signs of slowing down. Its risk outlook contains tough talk that vows to crackdown on banks that design systems to exploit consumers’ errors and lack of knowledge. It will consider a more intensive supervisory approach this year in a bid to change structures and culture within banks.

3. RDR

The FCA recognises the risk that more people will opt for non-advised investments when faced with up-front fees after the RDR. It says its response will be to improve financial capability of consumers, one of the aims of the Money Advice Service.

4. Interest-only mortgages

The FCA is concerned about the availability of interest-only mortgages arguing that lenders may be over-reacting by withdrawing or hugely restricting their offering. This is despite the mortgage market review imposing much stricter rules on interest-only mortgage repayment vehicles and FCA chief executive Martin Wheatley describing interest-only a “ticking time bomb”. Elsewhere, in its risk outlook the FCA also accuses bridging finance firms of “exploiting regulatory loopholes”.

5. Arrears and forbearance

The FCA says ensuring mortgage borrowers in arrears are treated fairly will be a key area of focus in 2013. It will conduct a thematic review looking into lender practices.

6. Competition

The FCA warns that ineffective competition can lead to inefficiency, higher prices and a lack of innovation. It has a statutory objective to encourage competition and is due to publish a paper on removing barriers to entry for new banks very soon.

7. Savings culture

The FCA is concerned about rising pension deficits that could leave individuals receiving lower income in the future. It also identifies the decline of defined benefit schemes and reduced state funding for long-term care as factors that will increase the need for private savings.

8. Low interest rates

In a search for yield the FCA says consumers are turning away from traditional savings vehicle and towards riskier investment products. As interest rates stay low it says there more consumers will become increasingly expose to higher risk.

9. Technology

The FCA warns against the increasing threat of cyber attacks that threaten market integrity through service disruption, breach or theft of personal information, or network intrusions causing loss of control of critical infrastructure. It warned firms about becoming too reliant on technology and vulnerable to risks.

10. Price comparison websites

The FCA will turn its focus onto price comparison websites this year as they continue to grow. It says they market complex products on price, rather than coverage, which may not be appropriate for the mass market and mislead consumers.


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There are 8 comments at the moment, we would love to hear your opinion too.

  1. And forget about the issues which causes the crises in the first place – I’m sure there are greater storms at sea!

    Probably the biggest regulatory risk is the regulator not knowing/understanding the market it’s there to regulate!

  2. Very good. I’m pleased with this. Stating areas for concern is good, any self respecting advisor will take note. I’d also agree – largely with all of these areas.

  3. All this is rather late in the day and a statement of what the industry knows already with minor exception. So,pray one might ask, what has been the purpose of the FSA if it was not to resolve these issues over the last few years?

  4. Utopia here we come.
    We just need a few more billion to get there.

  5. I would be more impressed if the regulator did not state the blindingly obvious that IFAs have been warning about since the RDR and the new FCA were proposed.

    Re – Adviser charging- by saying they will keep a close eye on fees and charges, they are trying to manipulate the market for advice, every firms expense base will be different and one of its biggest expenses is the costs of regulation and FSCS fees, which the client will have to fund via charges

    Re – Savings – clients need advice, not price comparison websites, in order to avoid the tendency to look at the charges on the product rather than the risks to capital. That costs money and I would be concerned that the FCA and its employees do not really understand the correlation between suitable advice and product recommndations.

    Re – Technology – The regulator has increased the need for technology with its insistence on firms making reports online. Firms and advisers need the technology to ensure that they keep adequate records for any regulatory review and the old method of keeping hardcopy files is now too expensive to maintain as a viable method of file maintenance.

    Re – RDR – it is blindingly obvious that now having reinstated the “front load” method of charging for advice and services instead of spreading the costs of advice and services over a period via product charges. that consumers will resent paying fees and look for less costly ways to invest, which in itself could cost them their savings if THEY screw up as there is no protection from FSCS.

    Verdict on RDR – not very well done, needed better planning rather than pushing the industry and consumers over a cliff edge.

  6. 60-75% of market risk could be removed if direct sales and restricted panels were banned and a single distribution chanel which was true whole of market was the only way for consumer to access finacial products.

    Just imagine how competitive products would become, overnight.

  7. A close eye on fees and charges? Is that their fees and charges which cost us a fortune?
    There is no other way to manage these costs except charge the client.
    Warned firms about becoming too reliant on technology? Give me strength!
    More people will opt for non aqdvised investments, the FCA will sort that out via MAS, for which we will have to pay.
    The whole thing is a dog’s breakfast.
    RDR is not, will not, cannot work.

  8. RegulatorSaurusRex 25th March 2013 at 4:48 pm

    They forgot about me!

    I’m the number one regulatory risk!

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