The FCA has listed a lack of competitive pressure in the pensions market, creaking IT infrastructure and the “significant threat” of financial crime as key risks facing the regulator over the next 12 months.
The FCA’s business plan for 2015/16, published this morning, lays out the major potential challenges it could be required to deal with between now and April 2016.
While the Government has launched retirement guidance service Pension Wise to provide retirees with information about their options, the FCA remains concerned the increased complexity of the post-April world could reduce competitive tensions in the market.
It says: “[Pension Wise] will not give advice on products or providers, so there will be a need for high-quality financial advice and guidance to be available from a range of sources, including face-to-face and online sources, which consumers may turn to as more options become available to them.
“There is a further risk that, without appropriate information and guidance to empower consumers, greater choice and the offering of more complex products in the pensions market will reduce consumers’ confidence and appetite to shop around and so weaken competitive pressure on providers to offer good value in this market, as highlighted in our market study on retirement income.”
The regulator also acknowledges there is an “increased risk of scams at the point of liberalisation”.
It adds: “Much of our work in this area in the short-term will focus on those vulnerable consumer groups of pensionable age, due to the particular risks this group may face in coming years.”
On technology, the FCA warns a failure to invest and maintain IT systems presents a risk to consumers.
It says: “A significant amount of ongoing technological investment is required to enter or continue being present in a market. The complexity and cost of such systems encourages firms to modify existing systems to deliver new functionality rather than replace them.
“As a consequence, systems may become increasingly complex, less resilient and potentially less secure.
“This gives rise to a number of risks, for example, a failure in a firm’s IT systems can significantly harm consumers. Outages can lead to consumers being unable to complete transactions, incurring fees on late payments and having a domino effect on transaction counterparties.”
The FCA also raises concerns about the risks posed by financial crime to the UK financial system.
It says: “We will maintain our focus on fraud that affects consumers. Firms appear to have stronger mechanisms to identify consumer fraud, therefore we consider that more regulatory resources will be needed to improve money laundering, bribery and corruption.”
Other key risks identified by the regulator include firms with large back-books acting against consumers’ best interests, poor culture and practice in credit affordability assessments, and unfair contract terms.
The FCA will also continue to “monitor closely” potential conduct risks emerging from house price growth.
You can read the FCA’s business plan in full here.