The review of the Advice/Guidance boundary announced earlier this year by the Government and the Financial Conduct Authority (FCA) may lead to a wholesale restructuring of the regulatory framework, Lucy Castledine, director of consumer investments at the FCA told delegates at PIMFA’s Compliance Conference.
Ms Castledine said the review had been launched in response to a number of risks of consumer harm the FCA had identified. These included developments in social media and digital technology, which had “opened up access to investing to many more people” in the UK, but which had also increased the risk of consumer harm.
Consumers can “now easily invest in high-risk investments”, she said, so it was now vital to ensure they were “as well equipped as possible” to make investment decisions.
Ms Castledine said the FCA had identified three further key consumer harms that it was seeking to address through its review of the Advice/Guidance boundary. Firstly, she said, many consumers who might gain through investing were holding their savings in cash, the value of which over time would be degraded by inflation. Secondly, many consumers “do not have the level of income they expect for their retirement” and finally many consumers were “not making effective, timely and informed decisions about their pensions”.
“Long-term social, economic and demographic changes have made the consumer investment market more important than ever before with consumers having more choice of products and services than they have done in the past,” she added.
The consumer investment market should enable consumers to save for later life and for major life events and give them the means to cope with unexpected situations, she said. But many consumers were missing out on the help they needed to make increasingly complex financial decisions.
“We think more can be done to support consumers to help them engage with their finances and make better investment decisions,” she said. “This could include more tailored guided services and simpler advice services. Though we understand the current regulatory framework may pose challenges to further market development to sufficiently meet consumer needs.”
“We recognise our role in making sure that these regulatory issues are explored and addressed where possible,” Ms Castledine added.
The Advice/Guidance review, she said “has the potential to lead to a wholesale restructuring of the regulatory framework for advice and guidance”. She said previous approaches in this area had been limited by the European Union regulations but that now the FCA had greater flexibility in terms of its rule-making powers.
The Advice/Guidance review would seek to ensure that consumers “get the help they want, at the time they need it and at a cost that is affordable to them,” she said. All of which would help them make better informed financial decisions.
The Treasury in conjunction with the FCA would be publishing an initial policy paper before the end of the year that would outline options and seek feedback from the industry, Ms Castledine said. But she added feedback from stakeholders had already been for the Regulator to “take its time to get it right”.
“We have been told to take our time. This is difficult. We need to make sure we get this in the right place. We have tried before, and we’ve made advancements, but this is really a fundamental opportunity for us against the backdrop of European legislation falling away to make a real difference. Engagement as part of that process will be absolutely key, and I strongly believe we will land in a sensible place with this
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