The Financial Conduct Authority says it is investing in consumer research and working more closely with consumer bodies to ensure its actions are based on how consumers truly behave and not “the rational economic man of the textbooks”.
FCA director of policy, risk and research Christopher Woolard said in a speech to the Tax Incentivised Savings Association annual conference yesterday that the regulator has much greater contact with consumer organisations to discuss risks that are forming in financial markets than in the past.
He said the regulator is aiming to encourage a “productive, open conversation with consumer organisations that have not historically been inside the tent”.
The FCA is also investing in behavioural economics to inform its thinking of how markets work in practice and has carried out research which segments consumers into 10 different groups. It plans to use this to target policy and supervision at specific groups, he said.
Woolard said: “We are trying to ensure we keep our actions grounded in an understanding of how consumers really behave rather than placing our faith in the wholly rational economic man of the textbooks.”
He also said the FCA is working with consumer groups, firms and trade bodies to encourage a “more consistent and best practice approach” towards vulnerable consumers.
Woolard said: “When we talk about consumer vulnerability, it is clearly important to recognise it as something that affects very large numbers of people – more than most realise – and cuts across all members of society.
“Ultimately, we want to see all financial services firms create and put into practice appropriate strategies to address the needs of consumers in vulnerable circumstances.”
He added that it “remains to be seen” whether the Government’s simple products review, published in March, will result in tangible market changes for consumers.
He said: “We recognise that simplicity can help to build consumer trust and engagement, and encourage product comparison and shopping around.
“What remains to be seen, however, is whether the foundations built in the Sergeant Review are transformed into tangible changes for consumers. It is something that requires the ongoing commitment of all participants, particularly industry.”