FCA temporary proposals to protect consumers affected by Covid19

Today, 6th April 2020, The Financial Inclusion Centre publishes its response to the FCA’s consultation: Proposals for temporary financial relief for customers impacted by Coronavirus.

We very much welcome the FCA’s intention to extend protections available to mortgage customers to borrowers. The FCA should be commended for producing a range of important measures so rapidly in what must be very difficult times for the regulator.

But, we are concerned that there are some gaps in the protection available to consumers and some of the proposed measures need to be more robust.

Three month period
It is highly unlikely the economy and household finances will have recovered within three months. Rather than keep the emergency protection measures in place for three months followed by a review, the default should be to presume the measures will be in place for six months unless there is clear evidence that household finances have recovered and the measures can be safely removed before then.

£500 interest free buffer
The three month, £500 interest free buffer for pre- arranged overdrafts should provide many borrowers with a degree of protection and reassurance. But, this is unlikely to be enough for the most vulnerable borrowers.

As mentioned, it should be extended for six months. Moreover, it should not be restricted to already arranged overdrafts in place. It should also be made clear to lenders that as part of TCF if the circumstances of the borrower require it, the limit should be higher than £500.

Banks are receiving significant support from the state and should be expected to play their part in protecting the most vulnerable. Elsewhere, we are recommending the establishment of a lending reserve fund to provide loans/ backing for loans to vulnerable consumers.

Under our proposals, if it becomes clear that certain banks would be disproportionately hit (eg. if they have a greater proportion of lower income/ high risk overdraft customers), they would be able to apply to this lending reserve fund for support. We urge the FCA to work with HMT in developing such a reserve lending fund.

Pre overdraft reform benchmark
The FCA has said that firms should ensure that overdraft customers are no worse off on price when compared to the prices they were charged before the recent overdraft changes came into force. This is welcome.

But, it is worth noting that the FCA’s seminal work on the overdraft market found that banks were exploiting what was, to all intents and purposes, a captive market of vulnerable overdraft customers by imposing unjustifiably high charges. These customers included those who lived in the most deprived areas of the country, disabled households, single parents, BAME households, and the unemployed. So, for these vulnerable households, the costs imposed pre the overdraft reforms are not a very helpful benchmark.

The FCA has made reference to charging a ‘responsible rate of interest’. But, this will be hard to monitor and enforce. The FCA’s overdraft reforms have failed to promote effective competition (there is clear evidence of price clustering). There already is a compelling case for a price cap on overdraft charges. But, the case for a price cap during the emergency is all the more urgent. We cannot rely on self-restraint by lenders – even if many lenders are behaving admirably. A price cap is the surest, most effective way of protecting vulnerable consumers.

Credit ratings
We support the FCA’s proposals on credit ratings. But, this measure should be extended to six months.

Gaps in coverage
There are some worrying gaps in the coverage of the FCA’s measures. In particular, high cost short term (HCST) credit, car finance, and debt management/ collection services. Mainstream lenders will be under the media spotlight and will be pressured to show restraint. As we know from experience, the subprime lending industry does not labour under the same reputational constraints. We urge the FCA to close these gaps immediately.

In the more extreme cases, vulnerable households will be at risk of being targeted by illegal loan sharks. We would urge the FCA to step up its work with partner organisations and Illegal Money Lending Teams working in this field to closely monitor activity and take necessary enforcement action.

FCA statements needed on standards of behaviour, enforcement, and consumer rights
On a more general point, it is obvious that during the emergency and survival phases many small businesses and households are going to face serious cash flow problems including those who have applied for social security and are waiting for claims to be processed. They will need to be treated with sympathy by regulated unsecured lenders and other creditors. They will be at risk from being targeted by unscrupulous regulated subprime lenders and unregulated loan sharks.

At times like this, the FCA should be making clear public statements to the market about the standards of behaviours it expects with guidance and examples. The FCA should also make clear public statements that it will mercilessly enforce against firms (and individuals under the SMCR) who breach regulations during the crisis.

The FCA and MAPS should also be issuing clear advice and information to consumers about their rights during these difficult times.

Planning for the next phases of the crisis
Finally, it is important to note that the economic and financial crisis caused by the Covid19 pandemic will play out over four phases:

• Current emergency;
• Survival phase;
• Recovery phase; and
• Rebuilding and restructuring phase.

It is critical that policymakers, regulators, and civil society recognise that the effects on households and financial consumers will be felt for some time after this emergency period. We need to understand which households/ consumers will be affected during these phases, how they are likely to be affected, why they are vulnerable, and develop appropriate timely responses.

We appreciate the FCA is focusing on the emergency phase. But, additional measures need to be developed now in readiness to protect consumers during the dangerous survival and recovery phases.

We have made it clear that we are willing to assist and support the FCA in developing a response to the ongoing crisis.

Our response can be found here: FIC FCA COVID TEMP PROTECTION MEASURES 06042020

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Time for Action – Greening the UK Financial System

Today (10th March 2020), the Financial Inclusion Centre publishes its new report, called Time for Action, looking at the degree to which the financial system (financial markets, financial institutions, and individual consumers) contributes to tackling the climate crisis.

The report also assesses the daunting barriers holding back the financing of what we term sustainable, responsible, and social impact (SRI) activities; and makes over 40 policy recommendations to ‘green the financial system’ and increase the level of SRI financing. Some of these interventions are radical and far-reaching. But, the scale of the climate crisis, and need for the financial system to play its full part in tackling that crisis, requires radical interventions.

We are hugely grateful to Friends Provident Foundation for sponsoring this report and the support provided throughout the project stages.

We look forward to engaging with stakeholders on our findings and recommendations over the coming months.

The key findings and recommendations are summarised below. The report itself can be found here: Time for Action – Greening the Financial System FIC FPF Report

KEY FINDINGS AND RECOMMENDATIONS

There would seem to be a growing consensus that, to tackle the climate crisis, we need to change the way:

We live: the choices we make about how and what we consume.
We work and produce: the nature of economic activity and the corporate behaviours society expects.
The financial system works: the allocation of resources by financial institutions, and the choices we make about how our money is used.
Global markets are governed and regulated: the climate crisis is a truly global issue and so requires a global, collaborative approach to governance and regulation.

Our new report focuses on the role of the financial system. It is certainly an interesting time to be considering the role of the financial system. The social utility of financial markets and their contribution to the climate crisis is under intense scrutiny. The credibility of, and trust in, the sector remains low due to the role it played in the financial crisis of 2008, and a litany of misselling scandals.

Benchmark interest rates and government bond yields were driven down in the aftermath of the 2008 crisis. The effects are still being felt today. Savers, investors, and pension scheme members are exposed to new financial risks, while the allocation of financial resources to the real economy has been distorted.

The financial system is under renewed stress driven by fears of the potential economic impacts of the Coronavirus and disruption in the oil markets. It is likely to be some time before interest rates and bond yields return to typical pre-crisis levels (if they ever do).

But, this ‘new normal’ of low interest and bond rates should also create opportunities for finance for good – sustainable, responsible and social impact activities which we refer to collectively as SRI. Financial institutions and households are looking for ways to generate decent returns to offset the low yields on deposits and bonds (the ‘search for yield’). The sheer scale of the assets available in financial markets and savings, investment and pensions portfolios creates a huge pool of potential resources to be channelled into SRI activities.

This report, therefore, set out to assess the potential for SRI growth. To do so, we asked two questions:

• Do previous behaviours give us hope for the future? Specifically, in the post 2008 low rate world have financial institutions and investors significantly increased the amount of resources allocated to SRI activities?
• What are the barriers that limit the financing of SRI activities, and what policies are needed to promote greater levels of SRI financing?

Key findings
Our findings confirm that SRI has indeed moved up the agenda, attitudes have become more positive, and there has been some growth in assets allocated to the sector. But, it must be said, there is a long way to go before SRI is mainstreamed into financial markets.

The proportion of total assets held by financial institutions and households in SRI remains very low – particularly seen against the amount invested in alternatives (such as hedge funds or private equity), banks have lent to other parts of the financial system or to the property market, and households have invested in the buy-to-let property market. On the retail investment side, just 1.4 percent of total assets under management are invested in ethical funds.

Globally, the value of funds managed with explicit environmental, social, and governance (ESG) criteria is still under one percent of total global assets under management. ESG assets under management would seem to be growing at a slower rate than mainstream assets under management. Similarly, specific green bonds represent a small fraction of the vast global bond markets.

UK company boards are not coming under sustained pressure from shareholders to realign company operations to SRI goals. The UK scores poorly on issuing green bonds for domestic use compared to other countries with smaller financial centres. The UK has regularly failed to meet its targets for direct investment in clean energy projects. Bank direct lending to green projects has also been disappointing, while the Bank of England’s QE programme has been skewed towards high carbon sectors of the economy. It is not surprising therefore that the level of economic activity in the green sector has also been disappointing still representing around one percent of total economy turnover.

The barriers and factors constraining SRI financing
What explains the disappointing performance so far? There are daunting barriers to overcome if we want to see the necessary level of financial resources allocated to SRI.

Specific nature of SRI projects Long payback periods and the perceived higher risk of SRI assets can be unattractive to risk averse, short-termist financial institutions and markets.

Institutional factors A range of factors including the type of liabilities institutions face, tolerance to risk, and the need for liquidity reduces the viable pool of resources available for SRI.

Financial regulation Misconceptions about legal duties can constrain willingness to finance SRI. Gaps in consumer protection means that less sophisticated investors are vulnerable to misselling of supposedly ‘green’ financial products which could undermine confidence and trust in SRI. Growing awareness of SRI increases the risk of ‘greenwashing’ in the financial system and the real economy.

Information and perception barriers There is a lack of clear definitions and criteria for determining whether an economic activity complies with SRI goals, and a lack of trustworthy benchmarks and inconsistent ratings to judge how well loans and investments comply with SRI criteria. Data and research on risks and rewards associated with SRI assets is very limited. The amount of effort and cost required to identify potential SRI financing opportunities can deter financial institutions.

Limited market infrastructure to support SRI This includes a lack of an appropriate primary and secondary market infrastructure for raising capital and trading of SRI assets, and collective investment vehicles for managing the risk of investing in smaller scale SRI projects. But, promoters of SRI face a catch 22 situation. Sufficient resources are unlikely to be committed to developing the necessary research base and infrastructure unless those asset classes become more popular. But, SRI is unlikely to become mainstream without the necessary research and supporting infrastructure. This is a particular problem for smaller or early stage SRI ventures.

Dominant culture of short termism and shareholder value Market short-termism is at odds with the long payback periods associated with direct investment in SRI, and is a constraint on listed companies who wish to spend time and money ‘greening’ their operations. Greening the UK economy will require significant investment in research and development (R&D). But the UK has a low level of spending on R&D and corporate investment compared to other major economies. The emphasis on shareholder value appears to lead to lower levels of investment and holds back innovation.

Limited availability of suitable SRI ventures The lack of viable SRI ventures creates a natural barrier restricting the amount of SRI finance that can be channelled into economic transformation.

Other market factors Passively managed funds now represent 25 percent of total UK assets under management in UK. Passive funds automatically include shares of companies from energy-intensive sectors in their portfolios, and are not actively managed so fund managers do not seek out potential SRI opportunities not listed on markets. Investment consultants influence investment and asset allocation decisions on £1.6 trn of pension assets (out of a total of around £2 trn). Similarly, nearly 80 percent of money managed on behalf of retail investors is done on an advised basis. Persuading these influential gatekeepers of the merits of SRI will be a priority.

Policy recommendations
So, what needs to be done? There are a number of existing civil society and market-led initiatives designed to promote greater use of SRI which we support. But our analysis of the structural barriers tells us these are unlikely to go far enough to mainstream SRI into financial markets. We make 41 specific policy recommendations grouped around the core policy aims of:

– Increasing the availability of consistent, trustworthy SRI information, research, and analysis
– Raising awareness of and promoting confidence in SRI assets
– Encouraging investors, lenders, and intermediaries to engage with SRI
– Embedding SRI into decisions made by lenders, investors, and financial intermediaries
– Better aligning financial market behaviours with SRI goals
– Creating a more supportive regulatory architecture
– Ultimately, increasing the resources allocated to SRI by the public and private sector.

Details of the policies can be found in the report. The key recommendations are:

• Stakeholders should collaborate on developing a central repository of information, research, and risk analysis on SRI. This should be accessible to financial institutions, regulators, pension trustees and citizen-investors.
• Post Brexit, UK stakeholders should prioritise the development of a UK SRI classification system to help regulators, lenders, and investors identify the degree to which economic activities, sectors of the economy, and individual listed and larger private companies comply with SRI goals. To address the risk of greenwashing, stakeholders should develop a new SRI compliance rating system based on the new taxonomy published on an accessible, central database. For retail investors, an SRI rating label should be developed and included in comparative information tables.
• SRI funds/ financial products, and firms that provide and promote those funds/ products, should come under the same FCA regime as mainstream financial products and covered by the Financial Ombudsman Service (FOS), and Financial Services Compensation Scheme (FSCS).
• Regulators should introduce deterrence factors for ‘brown assets’ and penalties for financing economic activities that damage SRI goals, not incentivise through ‘green supporting’ factors.
• Financial institutions should be mandated by regulators to assess how lending, investment, and insurance decisions contribute to SRI goals; and publicly report the results of those assessments using the SRI classification mentioned above.
• Government should consider new tax structures including a financial transactions tax (FTT) to encourage long term investment horizons, early stage SRI financing, and long term investment in research and development (R&D) with a focus on climate related projects and cleantech.
• Stakeholders should develop collective investment and lending schemes to allow institutional and retail finance to be channelled into early stage/ small scale SRI ventures in a way that minimises costs and diversifies risks. Stakeholders should work with investment industry experts to develop a wider range of SRI index funds.
• The market on its own will not deliver the necessary financing. The state needs to play an active role. There is a strong case for a national SRI Investment Bank to finance early stage SRI ventures and take equity stakes in established ventures. The British Business Bank should also be given a specific new objective to finance SRI projects. Government should issue Green Sovereign Bonds to finance larger scale SRI initiatives. National Savings and Investments (NS&I) should offer Green Finance and Social Housing Bonds to allow citizens to play a role in financing SRI. Government should support local authorities in developing community Green Finance and Social Housing Bonds.
• The Bank of England should be given a new statutory objective to promote financial market behaviours that contribute to economic and environmental sustainability. The FCA and Prudential Regulation Authority (PRA) should be given new obligations to support and have regard to the impact of their policies on the Bank of England’s sustainability objective.
• The FCA should be given responsibility for overseeing how financial institutions, listed companies and larger private companies disclose compliance with SRI criteria. Reporting on SRI compliance should be made a statutory requirement rather than voluntary, with appropriate sanctions for non-compliance with reporting standards.
• Government and Bank of England should establish a Financial Sustainability Committee (FSC) along the lines of the Monetary Policy Committee (MPC). The FSC should take responsibility for the Bank’s new statutory objective described above and coordinate the work of all the regulators involved in managing climate related risks – the Bank of England, PRA, FCA, and The Pensions Regulator (TPR). The FSC should publish an annual report on its activities plus a wider triennial review on progress against its objectives. The FCA, PRA, and TPR should also publish an assessment in their annual reports on how their activities have contributed to the objective of the FSC.
• The government should lead a new strategy to green the ‘real economy’. Building on the work of the Committee on Climate Change (The CCC), government and relevant regulatory authorities should undertake a ‘transformation audit’ of the main economic sectors to assess the contribution each sector has made to the greening of the economy; and develop a transformation action plan for each sector. Government should establish a single agency to coordinate this strategy. This new agency, along with the National Audit Office (NAO) should develop new metrics to judge the performance of each sector, and publish annual updates and a formal triennial review of progress made against the transformation strategy.
• It is not yet clear how Brexit will affect initiatives to develop SRI financing. Therefore, policymakers and civil society should collaborate on analyses to assess the implications of Brexit on UK initiatives to promote SRI. In particular, this should consider the effect if the UK is no longer a key player in the European Union’s ambitious Capital Markets Union (CMU) project and Action Plan for Financing Sustainable Growth.

 

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Can Payroll Deduction Schemes via Credit Unions Get Workforces Saving More?

Today the Financial Inclusion Centre publishes a new Interim Report ‘Getting Workforces Saving’. The report is funded by the Money and Pensions Service and tests how effective payroll deduction is at encouraging greater levels of savings and positive financial behaviours in comparison to other saving approaches.

For the Summary Report please click here:  Getting Workforces Saving – Credit Union Payroll Deduction Summary Report Final October 19

For the Full Report please click here: Getting Workforces Saving – Payroll Deduction Schemes with Credit Unions – Full Report Final October 19

Payroll saving research
The importance of fostering a savings habit and building a financial buffer is gaining recognition with the workplace. Yet, while the rationale to harness automated payroll deduction as a mechanism for workers to develop regular savings is clear, there seems to be little research on the topic.

This 18 month study, with Leeds Credit Union (LCU) and employers NHS York and Leeds City Council, will help determine how effective payroll deduction schemes are in getting employees to build and retain savings. The study will also evaluate the wider impacts on employee wellbeing.

Key findings
As part of the initial scene setting report, we conducted extensive baseline surveys completed by over 1,600 staff across the two participating employers. This baseline data will be used to evaluate the impact of payroll deduction schemes over the lifetime of the project. But there are some important findings worth sharing now.

Employees saving with a credit union via payroll are much more likely to save regularly. The workforce survey found that 78% of payroll users with the credit union consistently put aside funds every single month, compared to 55% amongst other non-payroll credit union members, and 47% amongst those staff that are not members of the credit union.

Payroll deduction schemes with credit unions appear almost universally popular amongst existing users – 96% stated that they would recommend this method to their co-workers.

Ease and simplicity is the principal driver for participating in a payroll deduction scheme – 79% stated it was the main reason for saving via this method with the credit union.

There appears to be a distinct lack of awareness about opportunity to save via payroll deduction. Almost two-thirds (62%) of those not already saving via payroll were unaware they could make regular savings via their employer in this way.

Overall, the findings from these questions on savings are encouraging and would seem to indicate a positive relationship between credit union membership within workforces and more frequent and persistent (or disciplined) saving habits compared to their non-credit union member colleagues.

The research also highlighted the wider financial struggles facing these workforces.

More than half of workers report that their current financial situation makes them feel worried – the baseline results show that 51% of non-members and 48% of LCU members (which drops to 47% amongst just those with payroll deductions) reported a high level of anxiety about financial circumstances.

Financial worries are detrimentally impacting upon employees’ lives. The workforce survey found:

• Well-being: 39% of non-members and 34% of credit union payroll members strongly agreed or agreed that it has affected either physical or mental health over the last 12 months.
• Family relationships: 32% of non-members and 28% of credit union payroll members strongly agreed or tended to agree that money worries had affected their family relationships over the past year.
• Work life: 19% of non-members compared to 15% of credit union members with a payroll deduction tended to agree or strongly agree that their money worries had affected their work over the past year

Next steps
The practical delivery of the test and learn research is set to be completed by February 2020 with the final Evaluation Report published towards the end of summer 2020. The findings will be used to ultimately encourage more employers across the UK to offer similar initiatives.

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Brexit and the regions

There has been much heat produced by political debate since the UK voted to leave the EU. But little light has been shed on the potential impact Brexit might have on vulnerable households in the UK. To address this gap, today the Financial Inclusion Centre publishes its new report assessing how vulnerable households in the nations and regions of the UK are in the run up to Brexit.

The consensus is that the economy of the UK will take a hit from Brexit – the harder the Brexit, the bigger the hit. But, this report, funded by Barrow Cadbury Trust, warns that weak economic performance in the North East, Wales, Northern Ireland, Yorkshire and Humberside, the North West, and the West Midlands – compounded by high levels of household financial vulnerability – leaves households in these regions particularly vulnerable to the potential effects of Brexit.

The report highlights that these regional economies have been performing very poorly on key measures of economic activity creating a gap with the powerhouse economies of London and the South East which has widened still further since the financial crisis.

The Government’s own economic analysis has concluded that these regions would be hit hard by Brexit – particularly a hard Brexit. The regions expected to be hit hard by Brexit also have high proportions of households who are overindebted, are in financial difficulty or just surviving, or who are considered to be financially vulnerable.

Unless mitigation strategies are adopted by national and local government with civil society and industry stepping up to the plate, Brexit will make the situation even worse. This will have serious consequences for the millions of households across the regions who are already financially vulnerable.

The report, for the first time, brings together data on economic performance, household financial vulnerability, and assessments of Brexit impacts to paint a compelling, worrying picture of regional vulnerability in the run up to Brexit.

Key findings include:

  • Over the 10 years since the financial crisis, weekly earnings averaged £510 in the North East, £486 in Wales, and £467 in Northern Ireland compared to £753 in London – and that gap has widened post the financial crisis.
  • In the 10 years before the financial crisis, economic output per head[1] in the North East was on average £4,800 lower than the UK average – that gap grew by £1,400 to an average of £6,200 after the crisis. The gap for Wales widened by £2,000, while Northern Ireland saw the gap grow by £1,600.
  • In the 10 years before the financial crisis, the North East received fiscal support[2] equivalent to an average of £2,600 per head per year. Since the crisis, that rose to an average of £4,300 per head per year. For Wales, that level of support rose from £2,900 to £5,000 per head per year. For Northern Ireland, from £3,600 to £5,500 per head per year.

Author of the report Mick McAteer said: “The potential impact of Brexit on the UK economy is obviously front of mind. But, this is the first real attempt to understand how Brexit could affect vulnerable households across the regions at a time when real average earnings in the UK are still 3% lower than 10 years ago.

“If the Government’s own economic predictions are correct, Brexit will cause these gaps between the various countries and regions of the UK to widen still further.

“It is only in London and the South East where we see the amount of public revenue generated being greater than public expenditure. This has potentially serious implications for the weaker UK regions. If the powerhouse economies are hit hard by Brexit, this will undermine their ability to finance these levels of fiscal support which have played a significant role in minimising inequality in the UK.

“In the worst-case scenario, some of the most vulnerable regions could suffer a ‘triple whammy’. First, a very significant loss of potential economic output. Second, these regions also face the loss of EU funding and third, unless fiscal transfers from stronger parts of the UK economy can be maintained at the same level to mitigate these impacts, the combined economic shock could be severe.”

Malcolm Hurlston, Chairman of the Financial Inclusion Centre added; “Mitigation strategies are needed immediately to protect vulnerable regional economies from the impact of Brexit. Indeed, the results of our in-depth report suggests that renewed efforts should be made to tackle the problems even if Brexit didn’t actually happen.”

A summary of the report can be found here: FIC BARROW CADBURY BREXIT REPORT SUMMARY FOR PUBLICATION

The full report can be found here: FIC BARROW CADBURY BREXIT REPORT FINAL FOR PUBLICATION

[1] As measured by Gross Value Added (GVA) per head

[2] This measures the difference between the public revenue spent and public revenue generated in a region

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Financial Inclusion Centre response to the FCA’s high cost credit review including overdrafts

The Financial Inclusion Centre responded to two important consultation papers which formed part of the FCA’s High Cost Credit Review. These covered overdrafts (CP18/13) and rent-to-own, home collected credit (doorstep lending), catalogue credit and store cards, and alternatives to high-cost credit (CP18/12).

OVERDRAFTS

We commended the additional research and analysis the FCA has undertaken to help us understand the scale and nature of the detriment experienced by vulnerable people who have to use unarranged overdrafts. We also support many of the proposals in CP18/13. No doubt, some consumers will benefit from these measures and act more effectively in the market. Moreover, the supply side measures proposed should have some effect on making current account providers behave more responsibly.

But, considering the overall package we are not convinced that these measures go far enough. We are, of course, interested in making the current account market work for all consumers. However, our focus is on the detriment experienced by the most vulnerable households – in particular, the harm experienced by groups of households with protected characteristics which the FCA’s excellent analysis has highlighted.

The nature and extent of financial harm and discrimination in the overdraft market

The FCA’s new research exposes the extent of financial harm faced by vulnerable households as a result of practices by banks and building societies. These households are facing a serious form of financial discrimination.

Charges on unarranged overdrafts are significantly higher than on arranged overdrafts. Borrowers in more deprived areas are less likely to have an arranged overdraft in place and, when they do, they have a lower overdraft limit. Households in more deprived areas of the country are much more likely to have to use unarranged overdraft than other consumers. These borrowers tend to:

  • have lower incomes;
  • be from Black, Asian and minority ethnic (BAME) communities; and
  • have a higher probability of being vulnerable due to poor health or a disability.

The fact that these households are more likely to be harmed by high unarranged charges is perhaps not surprising. After all, we know these households are disproportionately likely to be poor and have low levels of financial resilience. But the extent of the harm revealed by the FCA’s analysis is shocking. To summarise the findings from CP18/13:

  • People living in more deprived areas are 70% more likely to use an unarranged overdraft than those living in the least deprived areas. They also tend to use that unarranged facility more frequently. The repeated use of unarranged overdrafts by many vulnerable people suggests their incomes are so low that they regularly run out of money. The FCA research confirms a clear link between unarranged overdraft use and vulnerability.
  • They are paying twice as much in charges and fees as those living in less deprived areas.
  • Banks are making over 10 times as much (per £ lent) from unarranged overdrafts as from arranged overdrafts. Unarranged overdrafts account for, on average, around 30% of all overdraft revenues. Tellingly, the FCA sees firms using unarranged overdraft fees as a source of revenues to fund other parts of their current account business. In other words, the most vulnerable borrowers including those with protected characteristics are cross-subsidising better off households. This is a significant recognition by the FCA.
  • The majority of fees levied are concentrated on only 1.5% of customers who pay on average £450 a year in unarranged overdraft charges. To put this into context, third decile gross household incomes in the UK are around £340 a week[1]. So, lower income households could be losing more than a week’s income due to high overdraft charges.
  • Charging structures are asymmetric and cause significant harm to vulnerable borrowers. Fixed fees mean that a small amount of additional borrowing on an overdraft can lead to significant additional charges.
  • People living in the most deprived areas are also more likely to be hit by refused payment fees. On average, they pay 3.5 times as much each year in refused payment fees as those in less deprived areas. These refused payment fees are also highly concentrated with 10% charged for declined transactions – the majority of charges paid by 1.2% of consumers.
  • Historically, banks justified the higher level of costs and fees by the fact that unarranged overdrafts were more expensive to operate. But, as the FCA now points out, because of technology, there is no longer any justification for banks to have such different levels of fees and charges on arranged and unarranged overdrafts.

Better off, ‘lower risk’ consumers can switch away to better deals. That option is just not open to the most vulnerable households. Moreover, they are more likely to be hit by unforeseen events out of their control which push them into debt. They are already struggling to make ends meet with little room to reduce spending any further, or do not have savings to fall back on. In effect, these consumers are a captive market and are being exploited by the use of indefensible charging practices.

The conclusion must be that banks are exploiting the vulnerability of groups who are in effect a captive market with few realistic options to take their business elsewhere or qualify for other more affordable forms of consumer credit. New technology means the unfair treatment of vulnerable households through the imposition of such high costs cannot be justified. These groups are being exploited to cross subsidise better-off households.

FIC recommendations

Overall, the package of remedies does not go far enough to protect vulnerable households – particularly those groups with protected characteristics. Therefore, we make a number of calls on the FCA:

  • Price caps: we call on the FCA to undertake to cap interest rates and other charges (such as refused payment fees) on overdrafts. We suggest a daily interest cap with a backstop cost ceiling is the most appropriate method.
  • Interim consumer protection measures: the fact that banks impose such high costs on vulnerable borrowers (who are by definition already in financial difficulty) is surely in contravention of the key regulatory principle which requires firms to act in the interests of customers and treat customers fairly. Indeed, these charges must exacerbate the financial difficulty borrowers face. Until a cap on interest rates and fees is introduced, the FCA should target its supervisory activities to ensure that banks are treating vulnerable borrowers fairly. In practice, that means using supervisory powers to stop the use of these charging practices now. This would be a particularly good opportunity for the FCA to use its temporary product intervention powers.
  • Greater transparency: we have long argued for the introduction of financial inclusion legislation similar to the US Community Reinvestment Act (CRA) and Homeowners Mortgage Disclosure Act (HMDA). We advocate greater transparency on how well individual financial institutions perform against financial inclusion metrics. Our understanding is that due to legal constraints contained in FSA 2012/ FSMA 2000, we would need new legislation to force publication at the level of individual financial institution. We urge the FCA to communicate to HM Treasury the benefits of greater transparency. In the meantime, we would urge the FCA to build on its important Financial Lives initiative and publish more granular data on which communities are facing high levels of financial exclusion and discrimination.

Our response can be found here: FCA CP18 13 Financial Inclusion Centre submission

[1] For example, see:  https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/adhocs/006770grosshouseholdincomebyincomedecilegroupukfinancialyearending2016

RENT-TO-OWN, HOME COLLECTED CREDIT, CATALOGUE CREDIT AND STORE CARDS, AND ALTERNATIVES TO HIGH COST CREDIT

As with the work on overdrafts, we commended the level of additional research and analysis the FCA has undertaken to help us understand the scale and nature of the detriment experienced by vulnerable people who are targeted by suppliers of various forms of high-cost/ sub-prime credit.

We very much support many of the proposals in CP18/12 aimed at improving the information provided to consumers in these markets. No doubt, some consumers will benefit from these measures and act more effectively in the market.

Moreover, the supply side measures proposed to influence the behaviour of high-cost/sub-prime credit suppliers could have some effect on making them behave more responsibly.

But, considering the overall package we are not convinced that these measures go far enough. The FCA seems to see its role in being a referee, or creating a level playing field, between consumers and suppliers in the market rather than making the market work. Regulators are best placed to make this market work – not consumers.

The nature and extent of financial harm in the sub prime lending market

The analysis in the Equality and Diversity Assessment shows how much detriment groups with protected characteristics experience given their reliance on high cost, high risk, poor value products such as RTO, door step lending, and catalogue lending. We make a similar point in our response to CP18/13. The poorest, disabled, and BAME households are more likely to be paying unjustifiably high prices for consumer credit due to circumstances beyond their control.

The margins on extended warranties sold with RTO products are extremely high. The FCA’s own analysis found that providers are making profits of £25m-£40m a year on £40m-£45m of sales. Claims ratios are low. Only £4 is paid out for every £10 in premiums paid – this is a very poor value product and looks like it is being sold to many consumers who do not need it.

As FCA analysis shows, the median level of debt held by rent to own and home credit borrowers more than doubled in two years; the median level of debt held by catalogue borrowers has not risen so much but it still grew by 30% over two years[1]. This could be exacerbated by a range of external factors. The continued squeeze on wages and the roll out of universal credit (UC) are major concerns. We have already seen evidence that households with UC are much more likely to be in rent arrears than households generally. Nearly three-quarters of households on Universal Credit are in rent arrears compared to 26% of all households[2]. Similarly, households on UC are more likely to have debt problems than households on legacy benefits[3].

However, many of the more complex UC cases have yet to be rolled out – households on existing benefits or tax credits will be transferred from July 2019. The FCA’s interventions in the payday lending market has resulted in a much better functioning market and has helped promote more sustainable borrowing. But, we are concerned that these improvements may not be sustained. We fear that the UC roll out – along with the continued squeeze on wages – will leave growing numbers of households vulnerable to being targeted by the high-cost/ sub-prime consumer credit industry (regardless of which form it takes).

FIC Recommendations

We argue that the overall primary objectives for this review should be to:

  • Reduce the cost of credit paid by consumers
  • Reduce the amount of high-cost/sub-prime credit used by consumers, and ensure that credit is used sustainably
  • Force lenders to treat consumers fairly
  • Ensure consumers get redress and are protected from the consequences of tougher regulation

In order to achieve a well-functioning consumer credit market, we need to change the default setting from the current setting in which credit is aggressively sold by suppliers to one in which consumer credit is actively and knowingly bought by consumers.

To achieve this, we call for:

  • Consistent regulation: we need a consistent approach to regulating high-cost/ sub-prime consumer credit. Therefore, we call on the FCA to cap costs in these sectors and bring in a general rule that no borrower should repay more than twice the original amount borrowed – regardless of the form of consumer credit.
  • Limits on loan refinancing: we support the proposals in this condoc to improve the way information is provided to borrowers. But, this will not be enough to constrain supplier/ intermediary behaviours or promote sustainable borrowing. Therefore, there is a need to limit the number of times loans are refinanced.
  • Change the default setting: as a general principle, we should move towards a system where consumers have to proactively ask for credit limit increases, refinancing, or to be contacted by credit suppliers or intermediaries. We must change the default setting in the consumer credit market away from one where consumer credit is sold to one where consumers actively buy consumer credit.
  • Product governance: the FCA needs to make greater use of its product governance powers – particular the temporary product intervention powers to constrain the market and protect vulnerable consumers until a wider, more permanent set of reforms are introduced.
  • Greater transparency: the FCA has been producing some excellent analysis recently – for example, the analysis to support the payday lending review and now this analysis to support the high-cost/sub-prime credit review. Furthermore, the Financial Lives initiative has added significantly to the corpus of research on financial behaviours and vulnerability. We would urge the FCA now to use the schedule for the roll-out of UC to monitor and supervise the behaviours of high-cost/ sub-prime credit providers located in those areas which have already seen a roll out of UC and which are about to see a roll out over the rest of 2018 and during 2019.
  • Reviewing the FSCS: although not covered in this consultation process, we also urge the FCA to urgently review the remit of the Financial Services Compensation Scheme to ensure that consumer credit firms are covered. As the recent experience with Wonga shows, consumers who are entitled to redress may not get that redress once secured and preferential creditors are paid. There is a risk that this will be repeated with other firms in the high-cost/ sub-prime sector as regulation takes effect.
  • Debt buying/ debt collection: as the example of payday lending shows, regulation has consequences. Analysis revealed that much of the revenues were dependent on inherently detrimental business models. As a result, many firms have exited the market and/ or debt books have been sold on or collections outsourced. The activity of buying loan books and debt collection has not received enough scrutiny. Payday lenders, RTO, and doorstep lenders have been guilty of some egregious practices. But, at least they are relatively well known and in the public eye. This is not the case with firms which buy debts or collect debts on behalf of another firm. We call on the FCA to review these activities to establish whether firms are appropriately regulated and are treating borrowers fairly.

Our submission can be found here: FCA CP18 12 FInancial Inclusion Centre submission

[1] https://www.fca.org.uk/news/speeches/high-cost-credit-what-next

[2] https://www.localgov.co.uk/Housing-bodies-warn-of-increase-in-Universal-Credit-rent-arrears/45655

[3] https://www.citizensadvice.org.uk/about-us/policy/policy-research-topics/debt-and-money-policy-research/universal-credit-and-debt/

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Insight into Credit Union Membership

Today the Financial Inclusion Centre publishes a new report analysing the attitudes and behaviours of credit union members. To the best of our knowledge, this is the largest ever survey of credit union members, based on responses from over 12,500 users in 29 different credit unions across the country.

Attitudes to credit unions

The results were very impressive and encouraging for credit unions. 88% of respondents thought that their credit union provided good (38%) or very good (50%) value services. Just 1% said their credit union provided poor or very poor value services – a net positive score of 87%. Similarly, 85% of total respondents thought that their credit union’s customer service was good or very good. Only 3% said the customer service was poor or very poor – a net positive score of 82%.

We also asked members about their experience if they had applied for a loan and how well they understood the application process. Of those who had applied for a loan, 83% of respondents said they found the application process good or very good. Only 4% said the process was poor or very poor, while 12% said it was fair. This equates to a net positive score of 79%.

In terms of overall satisfaction levels, 81% said they were extremely satisfied or very satisfied with their credit union. Just 6% were slightly satisfied or not at all satisfied. This gives a net positive score of 75%.When asked if they would recommend their credit union to a friend, 84% of respondents said they would be likely or very likely to recommend with only 11% said they would be unlikely or very unlikely to recommend their credit union. This gives a net positive score of 73%.

A recent Which? survey found that mainstream banks average overall customer satisfaction score was 68% (these surveys are not directly comparable but they do set the impressive results achieved by credit unions in context).

Financial capability

The analysis also found that these credit union members scored well compared to the general population on a range of self-reported financial capability measures, saying they feel they have their finances under control and are confident in dealing with money matters.

However, analysis of the questions on actual financial knowledge (rather than self-reported answers), paints a more mixed picture – a large proportion of respondents either got the wrong answer, or didn’t know the answer to some fairly basic questions. A particular concern is the number of respondents who were not able to choose the best deal on a loan, or were unsure about what to consider when taking out a loan. This should be an area of focus for financial capability interventions.

Opportunities and challenges

The research also demonstrates the importance of the broad range of financial services being delivered by these not-for-profit financial providers, with the majority of respondents using their credit union as an affordable and fair source of borrowing – an invaluable alternative to high-cost credit such as payday loans, rent-to-own firms and door-step lenders.

If the credit unions covered in this report are representative of the wider credit union sector, the findings suggest very strongly these important not-for-profit lenders should be able to thrive. They are held in high regard by their members, customer service generates high levels of satisfaction, and large numbers of loans are being made.

But, despite everything they appear to have going for them, it is clear that (in England and Wales at least) credit unions and other community lenders have, so far, played a marginal role in meeting the financial needs of consumers and local communities.

If credit unions (and other community lenders) are to play a major role in tackling financial exclusion and providing more consumers with a viable, sustainable alternative to high cost lending, we need to understand why the impact has been so marginal. This is even more critical with the growth in fintech and big data. Financial exclusion is likely to grow as it becomes even easier to identify low profitability/ high risk borrowers.

Tougher regulation has been very effective at constraining the ability of high cost payday lenders to target vulnerable households and, in doing so, has cleared space for community lenders to thrive – for now. But, the same fintech and big data, which will exacerbate financial exclusion, allows high cost lenders to develop new business models to target vulnerable households.

The challenge now is to build capacity in the community lending sector. Our analysis at the Financial Inclusion Centre suggests that much work is needed to improve the economic viability and sustainability of the sector without losing the values of the sector. The key areas to focus on are:

  • improving the efficiency of revenue generation;
  • developing new distribution channels and shared platforms (including harnessing fintech and data for socially useful purposes) to generate economies of scale;
  • improving back office infrastructures to reduce costs and improve efficiency;
  • improving governance and risk management capabilities; and
  • developing new ways of channeling long term patient capital into the community lending sector.

We look forward to working with the sector itself and other stakeholders to build the capacity of these vital lenders so they can make a real difference to the financial lives of greater numbers of consumers.

The summary report can be found here: An Insight into Credit Union Membership – Barclays CU Programme Summary Report final

The full report with details of results and methodology can be found here: An Insight into Credit Union Membership – Barclays CU Programme Full Report final

NOTES: There are currently 442 credit unions across the UK with just over 1.5 million members accessing a range of saving accounts, affordable loans and other financial services.

The membership survey was undertaken as part of the wider Barclays Credit Union Programme that will have invested £1 million over four years to support the expansion of the credit union sector to improve its effectiveness and sustainability and reach more financially excluded households.

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The FCA’s Approach to Competition paper – Financial Inclusion Centre response

The Financial Inclusion Centre has submitted its response to the FCA’s Approach to Competition paper. This is a very important paper as it sets out how the FCA intends to use competition interventions to meet its statutory objectives.

We have registered our concerns that the regulator now seems to place too much emphasis on the potential for competition interventions (particularly demand side interventions) to fix harm and improve markets. There seems to be a worrying ‘dialing down’ of the regulator’s determination to use robust, effective regulatory interventions, and the emergence of a competition mindset.

It is important to understand the sequence in which improvements in markets take place. Failure to ensure markets operate to consistently high standards of conduct means that firms that behave badly can take advantage of firms which try to behave in a consumer-centric way – a race to the bottom.

In other words, good conduct is a prerequisite for real competition. But, we also know from experience that good conduct has not provided firms with a competitive advantage. Therefore, if we want to see real competition, tough regulation is needed to embed the right conduct and cultures across the market – only then is the platform created for effective competition to take place.

The FCA’s use of market studies is a particular concern. These can be very slow – in terms of the time taken from inception to actual interventions and changes in market behaviour taking place. Moreover, by their very nature, market studies:

  • further inculcate a competition mindset in the regulator;
  • rely on theories of harm derived from competition theory to explain market failure and detriment; and
  • lead the FCA towards interventions to create the conditions for competition rather than robust, direct regulatory interventions proven to make markets work.

We conclude that the emergence of this competition mindset, and emphasis on competition and demand side interventions, is a retrograde step and could be threat to the effectiveness of the FCA.

We have urged the FCA to reassure consumer advocates that it is not relying on competition interventions to make markets work. We have called on the FCA to:

  • continue to prioritise direct regulatory interventions which have improved the culture in financial services;
  • make greater use of proven regulatory tools such as product governance and price caps; and
  • use tougher sanctions to drive out bad practice and create a clean market for firms which want to compete fairly.

Our response can be found here: Financial inclusion centre response to FCA Approach to Competition final

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A tale of two scandals

Two financial scandals have dominated the news over the past few days. Concerns have been raised for some time now about a major pensions misselling involving defined benefit pension scheme transfers. These concerns have been highlighted by the publication of the Work and Pensions Committee report on the matter. The other involved the treatment of small business clients (in distress following the financial crisis) by the infamous RBS GRG unit.

Central to both these scandals has been the role of the Financial Conduct Authority (FCA), which has been on the receiving end of fierce criticism. These scandals raise two core questions:

  • Are the criticisms of the FCA justified in both cases; and
  • Do these scandals point to the need to reform our system of financial regulation?

The FCA, as with any regulator, deserves to be criticised when this is justified (and we have been fierce critics of the FCA on a range of issues). But is the criticism deserved in these two high profile cases?

By definition, the issues involved in both scandals (especially the RBS scandal and the FCA’s handling of it) are complex. Care must be taken not to oversimplify what can be important subtleties in legislation and regulation. But, to summarise the answer is:

  • With regards to the pensions misselling issue, yes, the FCA clearly does have real questions to answer and has been criticised with some justification.
  • The behaviour of the RBS GRG unit was appalling. It is hard to see how that can be disputed. But, as to the question of how the FCA handled the scandal, the regulator does not deserve the vitriol poured on it. The response by many external stakeholders (much of it seemingly based on misunderstanding of legislation and regulation) has been unfair and unreasonable. More worryingly, ultimately, it could potentially damage the ability of the regulator to operate effectively and in the interests of consumers[2].

The reasons are set out in the Commentary which can be found at the link below.

But what do the scandals say about the need for regulatory reform? It is never a good idea to launch into reform as a knee jerk response to a crisis. Flaws need to be identified, reforms considered properly (including whether reforms are actually feasible), and unintended consequences understood.

We have been thinking about this for some time. The work we do on evaluating the economic and social utility of the financial system, our work on financial inclusion and discrimination, and the growth in fintech/ big data lead us to conclude that there are significant weaknesses and gaps in our system of financial regulation. With Brexit on the horizon it seems like an ideal time to give reform serious consideration (the form of Brexit will, of course, determine the nature of any reform).

Moreover, working on the principle that we should never let a good crisis go to waste, these scandals do create an additional reason and new impetus for a proper, considered debate on how to reform our system of financial regulation.

We can never design a regulatory system that meets the unrealistic expectations of some politicians and the media who tend to pay attention only when things go wrong – there is no glory or story when things are going well.  The UK’s financial markets and services are just too vast and complex for that. But, the system of financial regulation can, and should, be improved.

Based on our analysis, the areas that stand out for reform are:

  • the objectives, duties and remit of financial regulators;
  • regulatory approach and culture;
  • regulatory tools and powers (including authorisations, supervision, enforcement and sanctions);
  • improving transparency around ongoing supervision and important investigations (such as the RBS GRG scandal) – without compromising natural justice and human rights of market practitioners accused of wrongdoing;
  • the capacity of regulators to respond more quickly and effectively to crises and emerging problems in markets;
  • the relationship between Parliament and regulators; and
  • regulatory governance and accountability, and stakeholder representation.

But it is not all down to regulation. Financial institutions (particularly the boards and senior managers) have a major role to play in improving the corporate governance and culture in their organisations.

We look forward to working with interested parties on these important issues.

The link to the Commentary can be found here: A tale of two scandals – FIC commentary

[1] see  https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/british-steel-report-17-19/

[2] We use a wide definition of consumer here to include retail consumers, micro-enterprises and SMEs, ad institutional clients

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The challenges facing CDFIs and other social lenders

Community Development Finance Institutions (CDFIs – now also known as Responsible Finance Providers)  have a proud legacy and have made a useful contribution to promoting financial and social inclusion in the UK.

But, it has to be said that, up to now, the contribution has been fairly marginal. Can CDFIs make a bigger contribution? We have identified a number of major economic, technological, and regulatory trends which will create opportunities and challenges for CDFIs.

We think that financial exclusion in the UK will grow as a result of economic, technological, and commercial trends and the continued squeeze on household finances – unless the effects are mitigated and social lenders step in to fill the gap in the lending market.

This should present opportunities for CDFIs – if they are able to respond. However, economic, technological, market and regulatory trends also create real challenges for CDFIs which, when combined with a number of operational and organisational barriers, could severely limit the ability of the sector to thrive and take advantage of those opportunities.

In this discussion paper, we describe those challenges, the implications for CDFIs (and other social lenders such as credit unions), and what needs to be done if CDFIs are to thrive and fulfil their potential.

We look forward to working with CDFIs and other social lenders, and wider stakeholders who have an interest in promoting social lending, on meeting the challenges ahead.

The discussion paper can be found here: Personal Lending in the CDFI Sector – discussion paper final

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Fintech – beware of ‘geeks’ bearing gifts?

There has been much hype recently about the potential for fintech[1] to transform financial services, and improve consumer welfare. But, there have been few objective assessments of the potential impact. Therefore, today we are publishing a discussion paper to generate better informed debate.

In the paper we consider: what is changing and not changing in financial services due to fintech; the potential benefits and risks; and conclude with a set of policy questions which need to be answered to ensure the benefits are harnessed, and risks mitigated.

The primary roles of financial services (banking and payments, asset allocation, credit creation, insurance and risk management) will not fundamentally change. But, what is changing is how these primary roles and activities are carried out. The complex ecosystem of financial institutions and financial professionals will change and new types of organisation, roles, and professionals with different skill sets are emerging. Consumers will be forced to change, too, and they will have to develop new skills.

All the main retail financial sectors (banking and payments, credit, pensions and asset management, life and general insurance) are being ‘disrupted’ by fintech – some more than others. The huge capital, wholesale, institutional and reinsurance markets that make up the global financial system and markets and sit behind more visible retail finance are also affected. Fintech is also becoming an economic success story for the UK – particularly the City of London.

But we cannot assume fintech is beneficial just because it is new and exciting. We must objectively consider: the potential risks and benefits; and whether fintech will improve the economic and social utility of financial markets and services by enabling those primary roles and activities to be undertaken more effectively for the benefit of households and real economy.

Proponents have been almost evangelical in their beliefs about fintech – and we agree that there will be real benefits for some consumers able to access better value, more suitable, personalised products and services. Used effectively fintech could reduce the costs of gathering and processing information so aiding financial inclusion. Fincapps[2] could be deployed intelligently to improve financial behaviours to bolster financial capability and financial resilience. Fintech also has the potential to help consumers better understand how their money is invested to promote more sustainable markets and hold corporates to account.

But, despite the claims about fintech (particularly about blockchain technology), not much tangible benefit has emerged yet. At the aggregate level, so far we see little reason to believe fintech will produce the same stepchange as, for example, the humble ATM, debit card, and direct debit. To be fair, it’s early days. We hope we are wrong and fintech delivers the much needed transformation of retail financial services. But the hype does not match even a cursory objective assessment of the potential.

However, there are numerous very serious potential risks and detriments which have not been considered in any real detail. We group these risks and detriments into: outright scams and fraud; greater difficulties with rights and redress; higher costs, greater value extraction in the supply chain; major conduct of business risks including greater risk of misselling and misbuying by consumers[3]; transition risks, disruption of established financial services; greater financial exclusion and discrimination; corporate governance and cultural risks; and regulatory risks. These risks and detriments exist in the ‘analogue’ financial world. But, fintech and big data analytics will heighten these risks.

Open Banking and the coming into force of the 2nd Payment Services Directive (PSD2) presents a serious imminent risk which regulators, the financial services industry, and consumers are not prepared for.

In an era of more complex, fragmented, fast moving financial services, financial regulators face a much more difficult challenge protecting consumers and making those markets work for consumers and the real economy. We need to upgrade our analogue financial regulation for the digital finance world.

Growth in fintech isn’t occurring because fintech is guaranteed to generate beneficial creative destruction or is truly ‘progressive’[4]. Nor will it be consumer demand led. Rather, fintech will grow because so many opinion formers and influencers (investors, fintech developers, policymakers, regulators, media, and consumer groups) believe in it. The fintech genie cannot be put back into the bottle but it should be contained. The challenge now is to harness the potential for good, and identify more precisely how risks will materialise in different sectors, the potential scale of the risks (which all depends on take up), and how to manage the risks.

We have set out a series of questions which we believe will help us deal with those challenges. We look forward working with partners over the coming year on this hugely important issue.

The Summary Discussion Paper can be found here:  Fintech – Beware of geeks bearing gifts FIC Discussion Paper Summary

The full paper can be found here:   Fintech – Beware of geeks bearing gifts FIC Discussion Paper Full

[1] When we refer to ‘fintech’ we include the full range of digital finance technologies, big data analytics, artificial intelligence/ machine learning, algorithmic trading, distributed ledger technology and so on.

[2] Financial inclusion and financial capability apps

[3] It is important to note that these conduct of business risks will be an issue in wholesale and institutional markets, not just retail financial services

[4] In that it will significantly improve the financial and social welfare of households and the efficiency with which financial markets serve the real economy – although we are at pains to emphasise there will be some benefits

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