The UK’s Financial Conduct Authority (FCA) has published a document detailed with “areas of concern” in the financial services sector, including how the rise of fintech may have put consumers at risk.
The watchdog released its annual Sector Views assessment this week, which investigates the impact of macroeconomic developments and common drivers of change emerging across financial markets.
It also aims to outline areas where there may be a negative impact on consumers or the integrity of the financial system.
Challenging economic conditions have resulted in slower growth and lower investment returns, the regulator says in its report, which has caused consumers to swing towards riskier products.
“UK households have direct exposure to financial market conditions through retail investments and pension savings. Pension auto-enrolment has increased household exposure to financial assets,” the FCA writes.
“Socio-economic factors have changed the financial needs across generations. The combination of an ageing population, a prolonged period of low interest rates, rising house prices, changes in the labour market and to student funding has reshaped the financial lives of consumers.”
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In the report, the FCA take on seven sectors: retail banking and payments, lending, general insurance and protection, pensions, retail investment, investment management, and wholesale markets.
The rise of fintech and Big Tech has reshaped user experiences, the FCA writes, but has also meant a growing participation in financial markets from new entrants which make “liability and accountability more complicated”.
The FCA questions the adequacy of protection available to customers switching to new market entrants. It adds that social media and ease of access may have led customers towards risky investment vehicles without their knowledge.
“Rapid innovation and change has raised questions about the adequacy of new firms’ controls to both safeguard client funds and prevent misuse of their systems for financial crime, including fraud,” it writes.
“Innovations in payments services, such as digital wallets, together with the complexity of the regulatory regime mean that consumers could suffer harm because they do not understand whether Section 75 or Financial Services Compensation Scheme (FSCS) protections apply to such products.”
Consumers and small and medium enterprises (SMEs) are also receiving poor value from their overdrafts, savings accounts, and transactional services.
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“Consumers and SMEs receive little or no interest on current accounts and associated savings accounts,” the FCA says. The watchdog wrote to multiple banks and building societies earlier this year inquiring as to why they have arrived at similar overdraft prices following pressure from regulators.
“We are committed to reducing harm in the markets we regulate,” says Christopher Woolard, executive director of strategy and competition at the FCA, as well as interim CEO.
“Our analysis of markets ensures that we do this effectively, helping us to decide where to focus our attention. We expect firms to be similarly focused on preventing harm and assisting us where they can, and we will continue to actively supervise all firms to ensure they achieve this.”
He adds: “What is clearly apparent from the Sector Views, is that many of the harms we are seeing are created by a significant number of smaller firms we regulate or firms beyond our remit.”
“The findings in the report will contribute to our upcoming Business Plan and the decisions we make affecting consumers, market integrity and competition.”