Financial Services Bill

Memorandum submitted by Age UK (FS 07)

1. Age UK

1.1 Age UK is the new force combining Age Concern and Help the Aged. We are a national charity and social enterprise working to transform later life in the UK and overseas. Our vision is of a world in which older people flourish. We aim to improve later life for everyone through our information and advice, services, products, training, research and campaigning.

2. Summary

2.1 The Financial Services Bill makes fundamental changes to the structure of financial services regulation. Much of this change is designed to prevent a repeat of the recent financial crisis through closer attention to and earlier intervention in the financial stability of large firms and the system itself. However, financial stability is not the only issue and the successive failings of parts of the financial services industry to provide safe, fair and accessible products must not be forgotten. Both the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have a vital role in improving outcomes for consumers.

2.2 Current regulation has failed older consumers in two main ways: (i) it has not provided adequate consumer protection, resulting in a series of waves of major customer detriment, with approximately £15bn compensation paid to consumers since 1990 [1] ; and (ii) it has not ensured access to essential financial services.

2.3 We welcome the provisions in the Bill which enhance consumer protection, especially:

· The inclusion of a new operational objective for the FCA to promote effective competition in the interests of consumers;

· Proposals to enable consumer bodies to make super complaints to the FCA;

· The principle that, in all activities, the regulators should exercise their functions as transparently as possible;

· The inclusion of specific powers, for the FCA, on product intervention;

· Provisions to allow the FCA to publicise details of actions taken against misleading financial promotions;

· The strengthening of the consumer protection objective, especially in relation to the requirement on the FCA to have regard to the needs of consumers for the timely provision of information and advice that is accurate and fit for purpose.

2.4 We also welcome the change in culture starting to be shown by the Financial Services Authority and the support the Government has given to the new approach. However, we feel that in order to maintain this change this culture must be enshrined in the Bill. To do this, we believe amendments are needed to ensure:

· The FCA and Government have the tools they need to address market failure and ensure access to essential services for all consumers

· A fair balance between the responsibilities of firms and consumers

· Recognition of the impact of PRA decisions on consumers

· The FCA can act confidently, swiftly and decisively

We have outlined these in more detail below.

3. Access, competition and choice

3.1 Proposed Amendment

Part 2 Amendments to the Financial Services and Markets Act

The Financial Conduct Authority: The competition objective

Page 17, line 35 at end insert –

(3) In furtherance of the competition objective, the FCA shall publish, maintain and review a code [The access and choice code] setting out (amongst other things) -

a) the approach that the FCA will take to ensure that the market provides different consumers with access to and choice about products and services that are suitable for their needs.

b) the approach that the FCA will take to ensure that the business conduct of those providing regulated financial services continues to promote competition in the interests of different consumers over the life of any agreement

c) The additional steps that the FCA may take where competition does not deliver access and choice to suitable products and service for different consumers

(4) The Treasury may by order specify –

a) financial needs of different consumers that are to be considered essential

b) the outcomes that are necessary to demonstrate that essential financial needs of different consumers are met

(5) Sections 138I (1)(b) and (2) to (5) and 138K do not apply in relation to rules made by the FSA if it considers that it is necessary or expedient not to comply with them for the purpose of achieving an outcome specified in an order under sub-section (4) of this section.

(6) Transactional banking is an essential financial need for all groups of consumers.

(7) Where the FCA considers that it is unable to achieve an outcome specified in an order made under sub section 4, the Treasury may by order confer additional powers on the FCA or direct obligations on those providing regulated financial services to ensure that the essential needs of different consumers are met.

Purpose and argument

3.2 This amendment requires the FCA to publish and maintain a code setting out how it will ensure that competition delivers essential financial services to all consumers. It leaves social policy questions with Government, by giving the Treasury the power to specify what financial services should be considered essential and what outcomes the regulator should pursue. It gives the FCA an objective which allows it to use its existing powers to support Government policy on access to financial services.

3.3 Consumers have no choice whether to engage with financial services, but the industry has no obligation to provide appropriate services to consumers. Competition is necessary for good consumer outcomes, however experience from other sectors, such as energy, shows that it is not sufficient for all consumers. For example, in the energy sector there are various regulatory requirements to ensure that all households have access to energy. Certain financial services, e.g. transactional banking, are now effectively essential for participation in society. However 4 per cent of households including someone aged over 85 are without a bank account. [2] And at least as disadvantaged are those who appear to be banked but who can’t actually use their accounts. Almost one fifth of people over 65 with a bank account use someone else to access their day to day spending money [3] and 24% of people aged over 65 find it difficult to get to a bank branch. [4]

3.4 As currently drafted, the Bill does not enable either the FCA or the Government to take steps to ensure positive outcomes for consumers where competition has failed. In order to complete the vision of a competitive financial services market working in the interests of all consumers the competition objective should be amended to give the FCA the mandate to use its existing powers to support the Government’s social policy agenda.

3.5 A separate, more comprehensive briefing on this amendment has been circulated to all Committee members jointly by Age UK and Citizen’s Advice.

4. Consumer responsibility

4.1 Although the general principles are not intended to place burdens or requirements on consumers or firms directly, the principles will determine the level of protection afforded consumers by the regulator and so in large part determine the balance of responsibilities between firms and consumers.

4.2 The current principle that consumers have "responsibility to look after their own interests" [5] does not reflect the reality of the imbalance of power between consumers and firms and complexity of decision making in this market. In order for consumers to make good decisions they need to be literate, numerate and financially capable.  They must receive information which is intelligible to them and both sales and advice processes must make this information more, rather than less comprehensible. The Bill needs to do more to ensure that consumers get information in a form which they can reasonably be expected to understand and that firms show an appropriate level of care both during and after the sales process. Many financial purchases – particularly pensions and annuities – are very long-term and difficult or impossible to unwind, and regulation must ensure that suitable standards are maintained throughout the lifetime of the contract.

5. Consumer       s and the PRA

5.1 Although the PRA focus is on safety and soundness of firms, its decision will have significant impacts on consumers, especially those holding with-profits policies. We are concerned that the Bill as currently drafted does not require the PRA to consider the views of consumers, despite the direct effects PRA decisions will have impact on the investments and pensions held by many consumers.

5.2 The Bill should be amended so that the PRA both considers the impact on consumers directly and through consultation with the Consumer Panel. Giving the Consumer Panel a role which spans both PRA and FCA should prove a valuable addition to coordination between the two bodies.

6. Decisive and effective regulation

6.1 We warmly welcome both the more proactive approach that the Financial Services Authority has started to take and the Government’s recognition of the importance of this culture. We also welcome the commitment to transparency. However we are concerned that the Bill needs to go further in order to enshrine this approach and ensure that the FCA has the objectives, powers and incentives to be the proactive regulator envisaged by Government.

6.2 Changes are needed to the Bill to clarify that the FCA can take action on unfair charges, and must address consumer detriment identified in super-complaints.

6.3 The Government review of section 348 to be completed during the passage of the Bill must ensure that this legislation enables the regulator to be transparent by publicising warning notices: consumers should be alerted to the regulator’s concerns about a firm’s behaviour and be able to either switch or even avoid a product altogether.

February 2012

[1] Financial Conduct Authority Approach to Regulation, June 2011, para 2.4

[2] Family Resources Survey 2009/10, DWP (2011), table 4.7, Adults, no bank account including Post Office Card Account

[3] The Way We Pay: Payment Systems and Financial Inclusion, Age UK, 2011

[4] Agenda for Later Life Survey, 2012 and 2011, ICM Research (unpublished)

[5] Financial Services Bill Explanatory Notes; HMT, (Jan 2012 ); pg 25

Prepared 29th February 2012