By Kevin Okell, Managing Director at Altus
In the blue corner we have the champions of consumer protection. From the original Treating Customers Fairly (TCF) principles to the 2018 discussion paper on a Duty of Care and now the latest guidance consultation on vulnerable customers, the FCA is taking a growing interest in how best to deliver on its obligation to protect consumers. In a further litmus test of regulatory attention, the level of fines related to treatment of customers has also been on the rise, with more than half of the value of 2018 fines citing unfair treatment of customers in the judgement.
In the red corner are the competition zealots. Whilst the FCA continues to insist it is not a price regulator, several recent papers suggest a more robust approach to promoting competition. Both the Asset Manager and Investment Platform market studies talk a lot about value for money and FS19/4 is devoted entirely to the subject of fair pricing in Financial Services.
It is no surprise that these two themes are so prominent in FCA output given that consumer protection and competition are two of the three guiding principles listed on the FCA About Us web page. The problem is, those two principles do not sit comfortably together.
One of the key benefits of competition is lower prices, typically delivered via improved efficiency. Efficiency involves standardisation and automation. But some of the FCA’s recent pronouncements on consumer protection suggest a much more personalised approach is required to clear the bar they have set on fairness.
Last month Standard Life was fined over £30M for failings in its non-advised annuity sales business. The final notice runs to more than 60 pages, so there are several threads to the FCA judgement but one stands out; the failure to inform clients that they could get a better annuity rate from one of Standard Life’s competitors, particularly where they may be eligible for an enhanced annuity.
Significantly from a regulatory perspective, this judgement further blurs the line on suitability for providers.
Remember this is non-advised business, where a provider is now being asked to ensure its call handlers delve into the personal medical details of its customers in order to establish if they may be entitled to an enhanced annuity – which sounds perilously close to advice. More than that, the provider is expected to monitor the competitor landscape for changes to the eligibility rules in other providers’ products and then to adapt its own process to ensure its clients are aware of these improved products.
The level of investment required in systems and processes to ensure that customers are screened then directed to your main competitors not only increases costs, it reduces revenue. The vulnerable customer initiative promises to add yet more fuel to the personalisation fire and will inevitably add further operational costs – which would all be fine until the FCA cranks up the pressure on “fair pricing”. At some point the FCA will have to acknowledge the tension within its own principles and decide which one is more important.
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