The FCA as part of its activity developing its “Mission” has recently issued a series of documents to allow input over its approach to consumers, competition and authorisation, with more to follow. AMI is disappointed that the content reads more as academic papers rather than identifying the real issues facing consumers and proposing specific solutions. Whilst we understand these papers in the overall context of the Mission, we remain concerned that these are seen in isolation and need to be consolidated into a cohesive whole. We see this division in many aspects of the siloed Handbook which is based on products and services and not focussed around the consumer and their needs. It is concerning that the paper does not try to lead to a better understanding of how consumers interact with different types of products and services depending on their needs, nor is there recognition of advice across this landscape. The FCA’s competition objective continues to be prioritised and misinterpreted as its vision for a well-functioning market omits advice, nor is there concern when consumers transact without advice in high risk scenarios.

The consumer paper focuses on provision of information, however it can be more appropriate for consumers to receive guidance or advice, particularly for long-term products where they will interact with these on an infrequent basis. The need to have the safeguard of advice is even more acute for vulnerable consumers. Whilst there is some recognition of this we do not consider that the paper adequately addresses the risks, the impact of technology in avoiding assessing vulnerability and the importance of firms who focus on the consumer as an individual and take the full responsibility of giving regulated advice.

Across financial products advice can be: not required, optional, assumed, preferable or compulsory. The most appropriate option depends on both the complexity of the product and the consumer, and this should be recognised when looking to avoid consumer harm. It is not necessary for the FCA to become a product regulator, however they should enforce their existing rules around the responsibilities of providers when designing products and their target market, with product manufacturers being more prescriptive on the need or not for advice.

As a specific example, we have not seen anything from the regulator regarding the punitive ground rent clauses on leasehold contracts; we assume because this has been considered to be outside of its remit. However a wider view needs to be taken. Affected leaseholders have been left in the position where they are unable to remortgage as lenders have now decided the property was previously overvalued.
Finally, we are concerned by the FCA’s focus on data science. We would not want to see an over-reliance on algorithms, particularly where the FCA “can use them even when we have limited prior knowledge to guide us” . With large datasets there is more risk of identifying insignificant correlations. Whilst data is undoubtedly useful in identifying trends, outliers and emerging risk, quality regulation and supervision is still, and for the foreseeable future, a human skill. We are concerned that in re-engineering the FCA we encounter many quality individuals, but too often they lack the knowledge or experience of the sector they are reviewing. Experience, knowledge and instinct have to be prevalent in effective work on the consumer agenda rather than theoretical models.

RTS – Feb 18