The FCA has just published its annual sector views report which comprises a state of the nation in terms of the financial services industry.
The report sets out the drivers for change in each financial services sector together with the international backdrop against which it operates. The report then goes onto discuss the harm identified in each of the sectors (being retail banking and payments, retail lending, general insurance and protection, pensions savings and retirement income, retail investments, investment management and wholesale financial markets).
Amongst other concerns, the report highlights the following:
- Retail Banking – poor value remains an issue in the overdrafts and cash savings markets. Switching is still not prevalent enough in the PCA and mortgage sectors.
- Debt – 7.4 million adults remain over indebted and firms are not identifying this soon enough.
- Consumer Credit – this can often offer poor value to consumers and some alternative providers exploit the reality or perception of limited choices to charge high prices.
- Insurance – the loyalty penalty in the insurance market is still costing customers money (estimated to be 6 million longstanding customers paying an extra £1.2 billion in 2018). There is also a lack of clarity around terms and conditions of insurance policies and many categories of consumer are still being excluded from certain insurance products.
- High-risk retail investment products – these products can expose consumers to more risk, particularly where the products are marketed direct with inadequate communication of the risks. Scams and financial crime in this sector remains high.
- Payment Firms – there is a worry that some new services are being promoted without giving all of the required information to customers. This results in customers being unaware that protections such as FSCS and S75 do not apply to those products. The FCA are also keen to ensure that all customers funds in this area is properly safeguarded.
- Pensions savings and retirement income – some people aren’t saving enough to maintain living standards in retirement, this is worsened by unsuitable financial advice, poor value products and scams.
- Investment Management – pricing and quality remain a concern. Operational resilience in this sector should be improved.
- Wholesale Financial Markets – a key focus remains on operational resilience as well as the LIBOR transition.
- Financial Crime – the scale of financial crime in retail banking is growing, in particular in relation to APP fraud – this position will be monitored on an ongoing basis.
- Interdependency on technology providers – many firms use similar providers of IT which can have a widespread impact on customers when there is technological disruption or data breaches.
- Cashless Society – the move towards digital banking can increase financial exclusion and is a worry in terms of operational resilience (since cash is seen as a back up for digital currency).
Some of the interesting stats set out in the report include:
- global investment by retail banks in fintechs more than doubled in 2018, reaching £85.6 billion through 2,196 deals
- consumers lost £168.2 million to APP fraud in H1 2019
- 1,493 new FOS cases in respect of e-money in FY18/19
- in 2016, 1.5% of customers paid 50% of unarranged overdraft fees
- 1.9 million customers continue to use cash predominantly
- in June 2019, 85% of PCAs were held with the big 6
- 5.1 million customers are in persistent debt
- 3,312 bank branches closes between January 2015 and August 2019
- in June 2019, outstanding credit card lending was at £72,854m
- 39 million people in the UK owe £1.66 trillion
- there are now 287 lifetime mortgage products available (which shows the growth in popularity of this product)
- firs time buyers are having to spend on average 5x their earnings
- all UK CMC turnover totalled £762.6 million in 2018 (of which £600.3 million related to financial services)
- 90% of consumers believe the loyalty penalty is unfair
- the insurance sector attracts the lowest level of consumer trust in financial services at 30% (causes mostly by misleading terms and conditions