Mar 18 – Froth not broth

It has long been AMI’s policy position to be supportive of the FCA, but always constructively critical where we consider they either do not fully understand the market or are being impelled by others in the wrong direction.  Two of our most recent policy proposal responses have been much more negative than many in some time.

Our recent response on their Consumer Mission paper outlined our concern that this appeared to be more an academic paper rather than identifying the real issues facing consumers and proposing solutions to remedy harm.  AMI is concerned that the Mission components are seen in isolation and not consolidated into a cohesive whole.  We see this in many aspects of the siloed Handbook which is based on products and services and not focussed around the consumer and their needs.  The paper did not try to lead to a better understanding of how consumers interact with different types of products and services depending on their needs, nor was there any recognition of advice across this landscape.  The FCA’s competition objective continues to be prioritised and misinterpreted as its vision for a well-functioning market starts with improving information and omits advice.  Nor is there concern when consumers transact without advice in high risk scenarios. We would have expected the FCA, as part of its legislative remit, to take this significantly more into account:

The Financial Services and Markets Act sets out that “In considering what degree of protection for consumers may be appropriate, the FCA must have regard to— the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose”.  The second element of this does not appear to us to have sufficient focus.

The distinction between short-term products which are lower in terms of cost and impact (e.g. current accounts, credit cards) and long-term products which are more expensive and higher long-term impact (e.g. mortgages, insurance) needs to be considered, particularly how consumers engage with each of these.  If there was an increased focus on the provision of information this could improve consumer education, but it may be more appropriate for consumers to receive guidance or advice, particularly for long-term products where they will interact with these on an infrequent basis.  The need to have the safeguard of advice is even more acute for vulnerable consumers.  Whilst there is some recognition of this, we do not think the paper adequately addressed the risk of technology in avoiding assessing vulnerability and the importance of firms who focus on the consumer and take full responsibility for giving regulated advice.

Across financial products advice can be: not required, optional, assumed, preferable or compulsory.  The most appropriate option depends on the complexity of the product and the consumer, and this should be recognised when looking to avoid consumer harm. It is not necessary for the FCA to become a product regulator, however they should enforce their existing rules around the responsibilities of providers when designing products and their target market.  This was clearly set out in the Treating Customers Fairly outcomes, with regard to product manufacturers being more prescriptive on the need or not for advice that is accurate and fit for purpose.

Secondly the paper on implementation of the new Senior Managers regime disappointed as despite the promise to make the transition as simple, clear and proportionate as possible, a paper running to 1,243 pages was published.  This is now a long way from the proportionate regime promised.  It is usually unreasonable for firms to rely on a consultation narrative or policy statement where ultimately it is the rules to which firms will be held accountable.  There appears to be little consideration of how firms are expected to have the resource to digest 1,189 pages of rules.

Due to the complex nature of the changes here, we consider the tables and flowcharts in the narrative to be very helpful.  However tracking these into the proposed new and amended rules is exceptionally difficult.  So we have asked that if firms comply with the advice in the tables and flowcharts then they will have “safe harbour”.  If there is a contradiction between the rules and the tables and charts, then the rules will be subservient and amended to reflect the stated policy intention.

Our concern about both these papers is that there a lot of froth, but they lack substantive broth that the industry needs to sustain itself effectively.

Robert Sinclair
AMI – Mar 18