3 min read 30 Jun 22
While financial services tends to be a little quieter in the summer months (and I stress, a little), that is not the case with the financial regulator this year.
From Consumer Duty to investment pathways and even to a new labelling system for sustainable investment products, the FCA may need to re-think its holiday plans.
Here is a quick summary of some of what is coming up in the next few months…
Firstly, the big one. Consumer Duty, and possibly the biggest step-change to the industry since the introduction of the Retail Distribution Review in 2012. At its heart, the Consumer Duty has been designed to herald a “higher level of consumer protection in retail financial markets” via four outcomes.
These are: products and services; price and value; consumer understanding; and consumer support. Each of these impacts on firms operating within retail financial services but the second one – price and value – may cause considerable head-scratching because it can be difficult to quantify.
The FCA recently confirmed there would be no delay to its Consumer Duty timetable, meaning a final Policy Statement in July 2022 and implementation by April 2023. Note ‘by’ 2023, not ‘in’ April 2023, suggesting the regulator expects to see action taken ahead of that date.
Since first drafting this blog, the FCA and The Pensions Regulator have put their heads together and issued a joint Feedback Statement on what the consumer journey through saving in a pension for retirement should look like. So at least that’s one item ticked off its summer list!
In a Call for Input last year, they invited views on how best to engage consumers so they can make informed decisions that lead to better pension saving outcomes. Sounds straightforward, but of course life is never that simple. As they point out, while the stages of saving for retirement can be relatively easily defined (starting up a pension; accumulating; approaching retirement; accessing a pension; decumulating), within these, people’s journeys are highly personalised and non-linear.
Notably, the regulators acknowledge the industry would like to do more to help consumers, however on the perennial question of moving the advice/guidance boundary, the FCA is standing firm, arguing it is up to individual businesses to explore solutions within the current rules framework.
There are numerous initiatives under way which are relevant to the regulatory objectives around the pensions consumer journey – including, for example, the government’s Midlife MOT project.
This is two pronged. Firstly, the FCA is looking to introduce Sustainability Disclosure Requirements on investment managers, meaning they will have to make what the regulator calls “more fulsome disclosures” around their management of sustainability risks, impacts and opportunities.
Secondly, the FCA wants to introduce a sustainable classification and labelling system for investment products. It says this will help those consumers with sustainability preferences – and their financial advisers – find the investments most likely to meet them.
I’m told this will be a three-month consultation beginning in July 2022.
This is likely to be new to you – because it’s new to the FCA too! In a nutshell, the regulator said it is looking to introduce regulatory changes making it easier for firms to give inexperienced consumers support when they want to invest in what it calls “straightforward, well-diversified products”.
Precisely how the FCA intends to address this particular issue is not yet known, but work will already be underway because a consultation is due in the second half of 2022.
In October last year, the FCA finalised rules for an innovative new category of open-ended authorised funds, the Long Term Asset Fund (LTAF). This was because it identified that some investors are unable (and in some cases unwilling) to invest in long-term assets, even when they could meet their goals. You can read the FCA’s Policy Statement here.
Its new rules embed longer redemption periods, high levels of disclosure, and strong liquidity management and governance features, and the FCA is now considering broadening distribution of the LTAF to a wider subset of retail investors “in a controlled way”.
Another summer one, this, with a consultation “planned” for summer 2022.
As if that wasn’t enough for the upcoming summer period, the FCA also said it will be beginning two pensions-related projects. One of these will be a post-implementation review of investment pathways, its initiative to ensure non-advised savers who opt to go into drawdown have access to simple, good-value investments that broadly meet their income objectives. A date for this one is TBC.
Meanwhile, the regulator has also indicated it will conduct further work “to support consumer decision making” following the introduction of its ‘stronger nudge’ rules in June 2022. These, you may recall, obligate pension providers to give customers a stronger nudge to Pension Wise guidance when they decide to access their retirement savings. Providers will be required to refer customers to Pension Wise guidance and explain the nature and purpose of this guidance.
So, in the round, the FCA is gearing up for one of its busier summer seasons in recent memory, which means plenty of reading (and action) by us.
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