Charles Randell has spoken to a virtual roundtable of bank chairs on how the financial services industry can work to support recovery from the Covid-19 pandemic.
He noted the great efforts that banks and other market participants have made to get business through the lockdown and consumers through the crisis. The next stage is unknown, as we cannot tell how quickly the economy will recover, but the pandemic has shown a number of things:
- generally, there is too much debt. Over 800,000 businesses have benefited from the government-backed loan schemes, but these are loans, not grants, and no doubt some of the debt will turn out to be unaffordable. There will have to be an understanding of how to treat customers in difficulty:
- lenders will need to scale their arrears handling functions appropriately and invest in training and controls;
- there will need to be a complaints handling mechanism – FCA is speaking to the FOS and the new BBRS;
- there is also too much personal debt: the debt burden off all those borrowers who have been able to defer payments or interest will have increased. Going into the crisis 1 in 8 Britons had no savings at all, and 8.3m people were already overindebted. We will need to tackle the legacy and look to the future;
- there needs to be an initiative that will work to reduce harmful borrowing, and also it needs to be easy for people to save into simple appropriate products. People need to be guided on how to diversify their savings well and understand what they may stand to lose. There should be protections that will stop consumers investing in unsuitable unlisted and illiquid investments. As a result of the pandemic FCA is looking at how to ensure not only better protection for ordinary retail investors from unsuitable products but also makes sure that firms that market unsuitable investments do not pass bills for misconduct on to well-run firms through the FCSC – the FSCS levy, he said, is already unacceptably high;
- digitisation has caused a huge problem of unsuitable products being marketed online, while also risking excluding those who have no online facilities. As more and more users move away from bank branches and ATMs, the cost of each consumer who does use them increases. It remains to be seen how many will return to these methods after the crisis, and how to support those that have no choice but to use them;
- the free-if-in-credit banking model may increasingly cause problems for banks, who subsidise these through the margin between higher interest on loans they make and the interest they pay out on their low, or no, interest current accounts. There is a risk banks will withdraw services they consider unprofitable but which are essential for some customers;
But Mr Randell said there are no opportunities for firms that can fund recovering and new businesses, and can develop more sustainable credit products coupled with savings. FCA has learnt many lessons in recent years and have moved to remedy problems with initiatives such as the RDR and SMCR. That said, he notes the regulatory approach has several shortcomings, which he listed as:
- an assumption that if firms follow the rules, the result will be good for consumers and markets;
- an assumption that the regulator is always best placed to judge whether firms are compliance and when to intervene;
- there is no longer any typical customer journey, but the rules are still based on such a thing;
- regulation of firms to prevent ordinary retail investors being offered high risk products is still not where it should be; and
- the bad behaviour of some firms is too often compensated by good firms, via the FSCS.
In future, FCA will focus more on consumer outcomes, by collecting the right data and applying a cross-organisational intelligence strategy. It will be clearer about hose outcomes. It will work to ensure it does more to correct the information asymmetry between firms and customers. It will redesign the system to ensure the “polluter pays” by making capital and PI requirements proportionate to risk. But this will take time.