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.
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.
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.
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.