FSA Publishes an Analysis of the Main Risks Facing Consumers
The Financial Services Authority (FSA) has published an analysis of the main risks which potentially face consumers in the financial services sector over the next 12 to18 months.
The Retail Conduct Risk Outlook shows that consumers continue to struggle with the effects of a slower economy, low interest rates and poor returns on investments. The FSA found evidence that many people are trying to tackle this by saving more, shopping around and paying off their debt.
As a result, one of the major risks consumers face is buying and being sold unsuitable products – everything from products that are too risky for them, to products they do not understand or that do not meet their individual circumstances.
The Outlook analyses the wider external factors in the economy, the pressures on different firms and how this might impact on different consumers. It is aimed at making sure firms understand, reduce and avoid the risks and is an essential part of helping the FSA target its resources. Supervisors will be working with firms to ensure they address the risks raised.
Martin Wheatley, FSA managing director, said: “Consumers rely on financial firms and their products to provide them with vital services – literally the means to run their lives. They need to be able to trust that the products they buy work for them and that they are getting a fair deal. But our report today shows that consumers worry they aren’t being sold the right products.
“It is clear that the financial services industry – firms and regulator – have a lot of work to do. Our analysis means we can focus our work on the most significant risks facing consumers. It also helps firms understand how to avoid the bear traps of designing products for maximum profit but little benefit to customers.”
The risks identified in the Outlook will be used by the FSA in its work with firms over the next 12 to 18 months. Some of the risks listed are well known, and are established in the minds of consumers, but others are new.
Early intervention to try and stop issues escalating into mass consumer detriment is one of the main objectives of the FSA’s conduct agenda this year, particularly as it develops the approach of the successor body, the Financial Conduct Authority.
The Financial Conduct Authority and Prudential Regulation Authority are due to be established in 2013. The Financial Services Bill currently undergoing parliamentary scrutiny is expected to receive Royal Assent by the end of 2012.
The Outlook describes 15 categories of risks that the FSA will be focusing on. They are: Aligning business models to fair treatment of consumers; Complexity in retail investment products and services; Firms’ responses to regulatory and/or legislative developments; General insurance; Governance in life offices; Host authorised corporate directors; Inadequate complaints handling; Investment propositions; Investment risk profiling; Investor compensation protection; Mortgages; Pensions and retirement planning; Product bundling; Projections; Systems and controls weaknesses in the network model.
To help firms understand the FSA’s view of the 15 highest priority conduct risk areas the FSA will be holding a series of roadshows.