The FCA has warned conflicts of interest, developments in technology and rapid house price growth are set to come under the regulatory spotlight during 2014/15.
The regulator published its risk outlook this week, which sets out key areas of supervisory focus over the coming year.
The FCA believes there could be challenges for large firms in adopting legacy systems and transferring customer data and online services to newer systems. The regulator is also concerned about the risk of cybercrime, and an over-reliance on third parties such as risk profiling tools.
The FCA plans to carry out work into how effective investment banks are at managing conflicts of interests, and how wealth managers and private banks manage conflicts of interests where clients invest in-house.
Following its leaked announcement of its work into closed book policies last week, the FCA raises concerns about firms with large back-books which may mean they do not act in customers’ best interests.
It says specific risks include firms “extracting value” from existing customers with legacy products by keeping them in high charging, poor performing products or funds.
The regulator will also monitor the impact of any rise in interest rates on lenders’ forbearance polices, and whether “substantial and rapid” house price growth causes lenders’ underwriting standards to drop. The FCA will review how firms are implementing the mortgage market review, but says risks remain as the effectiveness of the MMR rules in a period of rapid housing growth is untested.
The FCA will also be carrying out its post-implementation review of the RDR at the end of this year. The FCA says it is possible that advisers are “misinformed” by providers, with that information then passed to consumers.
The regulator says: “There may be wholesale product providers, who push products to IFAs, reinforcing incorrect or unfounded views about them – for example, the benefits that active fund management can offer to clients and the justifications used for this.”
FCA chairman John Griffith-Jones says: “The risks set out in this document should not just be of concern to the FCA but to the industry as a whole.”