Access to Financial Services in the UK

Speaker: Christopher Woolard, Director of Strategy and Competition
Event: Access to Financial Services: Launch of FCA Occasional Paper
Delivered: 24 May 2016
Note: this is the speech as drafted and may differ from delivered version

Highlights

• This Occasional Paper[2] explores the consumer experience of barriers to access.
• We aim to stimulate a debate with firms and regulatory colleagues to identify good practice and consider how a wide range of consumer groups can enjoy appropriate access to products and services over their lifetime.

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This paper represents a challenge. And not just a challenge to the FCA, but across industry, government and consumer groups.

It may not surprise you to learn that, as a regulator, we spend quite a lot of our time telling other people what to do.

Which is why it can be a little bit unnerving to publish a report, written independently, which suggests some things that we could be doing.

But that is exactly what we are doing today. Today’s paper[2] - written by a team that included two independent academics, as well as members of staff from the FCA’s consumer insight team –is part of our occasional paper series that aims to foster debate, freed from their usual roles.

This paper represents a challenge.

And not just a challenge to the FCA, but across industry, government and consumer groups.

It is in this spirit that I am delighted so many of you could join us today, and am very grateful for the Financial Inclusion Commission for putting together this morning’s event.

There will be plenty of time for our distinguished panels to debate the issues, but I want to cover the core themes of the debate:

• First I want to set out some of the challenges consumers face in accessing financial services.
• I will then highlight the steps we, as a regulator, have taken to gain a better grasp of the issue and understand the roots of the problem.
• Finally I will conclude by setting the challenge for all of us to work together.

It is very easy to take financial services for granted. For most people, they are readily available. Yet for a significant number of people many of the things we take for granted do not seem like an option. Without access to financial services, consumers can find themselves shut out of modern life.

It is very easy to take financial services for granted. For most people, they are readily available.

Yet for a significant number of people many of the things we take for granted do not seem like an option. Without access to financial services, consumers can find themselves shut out of modern life.

Irrespective of the job you do or what stage of life you may be in, you may find yourself unable to access financial services to meet your needs.

How many of us could secure our retirement without a pension, buy a house without a mortgage, or get by day-to-day without the most basic service – a bank account?

Barriers to bank accounts

A bank account makes everyday transactions possible and, crucially, provides a bridge for consumers to access other products and services.

Despite their central role in managing our finances, bank accounts are not universally accessible.

There are well documented problems with the availability of basic bank accounts. We are, though, seeing progress, and the Government announced in the 2016 Budget that it will legally require nine banks to offer basic bank accounts.

Another set of issues about bank accounts revolve around financial crime. For very good reasons, we require banks to put in place and maintain policies and procedures to identify, assess and manage money-laundering risk. In a complex and fragmented world we need to do all we can to disrupt terrorist financing and organised crime.

But this can create issues of its own. As today’s paper points out, stringent ID and credit checks leave little room to acknowledge that certain individual circumstances don’t satisfy the norm.

Access to insurance

I want to turn from bank accounts to insurance.

Consumers who had good access to services in the past can find they have become marginalised. Those who have, or are, suffering from an illness may find they can no longer access insurance with the ease they used to.

The report tells of people struggling to find insurance that meets their needs – either at all, or at a price they can afford (sometimes despite rather heroic searching). This is something we collectively cannot ignore.

Let me give you one example from the paper. Fewer than half of the poorest households have home contents insurance. There are a variety of reasons why this might be, but consumers in this bracket need to pay weekly, need a low level of cover, or no or a modest excess for the cover to be valuable. Often products that meet these needs aren’t available.

Digital transformation

Finally, let’s look at digital transformation.

Technological change is reshaping the delivery and consumption of financial services and products on what seems an almost daily basis.

New and innovative technology can create better competition, bringing benefits for consumers in better value products and services; in many ways, it improves access.

With this in mind, we recently hosted a ‘TechSprint’ with the aim of encouraging the development of new technological innovations to help improve access to financial services.

We asked a number of developers from firms to join us for two days, and look at new ways to improve access. For instance, a number of the teams developed prototypes which would have integrated facial, voice recognition and speech playback capabilities to simplify the user experience, providing voice and sight aids and removing the need to remember pin numbers and passwords.

But whilst engagement with digital services is part of daily life for most people, for some this technology remains out of reach.

As many as 1 in 6 UK consumers lack digital skills, while 14% of UK households are still not connected to the internet.

Whilst the government has an objective to ensure everyone in Britain has access to an affordable high speed internet connection, take-up will still be an issue we have to consider.

What the FCA has done and what we have planned

So what has the FCA done to address these challenges and what do we have planned to tackle the issue of access going forward?

Ageing population

A key group in this debate is the UK’s ageing population.

We know that the UK demography is evolving. There is an ever-increasing proportion of consumers aged 55+ and over 85s represent the fastest growing segment of the population.

In recognition of this, in February we launched our Ageing Population project, under the leadership of Linda Woodall, Director, Life Insurance & Financial Advice to understand more about how this generation interacts with financial services, and explore how we can improve the market for older people. Following the publication of our Discussion Paper[3], we are developing a regulatory strategy for this group, incorporating some of the thinking in the Access Occasional Paper.

We have been really pleased with the response from industry, government and consumer groups and have so far seen some positive changes to policies and practices in a range of sectors. For example, a number of lenders have reviewed their use of age limits in the mortgage market.

And we are keen to bring to light more opportunities for markets to adapt and better meet consumer needs in the future.

FAMR

Another key project the FCA has undertaken in this space is the Financial Advice Market Review[4], or FAMR.

Published in March 2016, in partnership with the Treasury, FAMR examined how financial advice could work better for all consumers.

The Review followed extensive market engagement in the form of our Call for Input where we received 268 responses from industry, and access was identified as a key barrier to receiving advice.

The recommendations of the Review are aimed at:

• Providing affordable advice to consumers.
• Increasing access to advice.
• And addressing industry concerns relating to future liabilities and redress, without watering down levels of consumer protection.

Conclusion

We don’t just need a conversation, we need actions too. As the regulator, we are proud to play our part in that.

So, we’re making some progress.

However, financial inclusion though is a vast topic, and one where the actions of the regulator alone cannot possibly address all the potential issues.

For the research we’ve published today to make a difference there needs to be continued commitment from everyone with an interest in this issue.

This Occasional Paper is very much the beginning of a conversation. Indeed, I hope the theme of collaboration will be central to our discussion today.

Today is very much about putting some of the issues on the table.

But it also needs to be recognised that the detriment illustrated in the paper is happening now.

So we don’t just need a conversation, we need actions, too.

Yes, we need to validate some of this research and agree what we are trying to achieve with each intervention. But I hope today marks a moment where we can consider what are we doing about it?

As the regulator we are proud to play our part in that. Thank you all for being here to play your part too.