Posted: 21st April 2016

“As we enter our fourth year, the external environment remains challenging. The firms we regulate are investing heavily in making the required changes to their business models, technology and culture to meet new regulatory requirements and new customer demands.” (Tracey McDermott, acting FCA Chief Executive) 

The 5th of April saw the publication of the FCA’s business plan for 2016/17, with this year's plan highlighting seven areas of focus for the FCA in the coming year. Here, we examine three which continue to be prominent talking points in the industry; pensions, financial crime and advice. What should firms be thinking about in these areas currently?



  • Policy changes and their effect on the ageing population

  • Pension products with high costs/uncapped fees

  • Consumers choosing alternative investments

  • Consumers being unable or unwilling to engage in their pension choices


Given the ageing population and the greater need for advice in the industry post-pensions freedoms, how will your firm tackle the barriers of accessibility and affordability of advice for older (and sometimes vulnerable) customers?

A consumer with a smaller amount of cash to invest can see the costs of advice significantly lessen their return on investment, and this contributes to consumers disengaging, failing to assess their options sufficiently or even using alternative investments to fund their retirement (not always without detriment). Can your firm formulate a pricing structure for retirement advice and products that offers an acceptable cost-benefit based on the size of a consumer’s investment? How does your firm assess value for money and ensure good customer outcomes?

Older consumers’ understanding of financial matters typically decreases with age, and this can further alienate them from the financial institutions they deal with, even despite their potentially increasing need to engage. Do consumers understand their potential eligibility for enhanced annuities, for example? Similarly, temporary vulnerabilities such as bereavement can decrease a person’s capacity to engage with financial services firms.

Engagement within the pensions sector remains one area for improvement. Given that figures suggest 38 per cent of people are not making any savings at all for retirement, tackling the barriers and affordability issues associated with pensions advice is all the more important, and it is not just those near retirement who need advice.

With research suggesting that getting professional advice at 25 can save on average an extra £34k for old age, the question is, how does your firm engage with a younger audience? This becomes all the more important when new and alternative investment propositions are coming onto the market at a seemingly unprecedented rate.

Creating and examining new pension propositions will be assisted by the soon-to-be-released regulatory sandbox and firms may wish to make use of this in order to innovate and experiment with new ideas, creating a competitive advantage in the long term whilst also ensuring good conduct outcomes.

For more information on the FCA's supervisory approach in the area of pensions, read our latest insight, or download our recent Vulnerable Customers white paper.



  • Changing risk criteria for new clients in the pursuit of profit and growth

  • Higher costs and falling profits causing firms to cut investment in systems and controls

  • Banks de-risking their product ranges due to greater regulatory requirements

  • Pensions reforms creating a new market for scammers


Is your firm beginning to formulate its plans for the implementation of the 4th Money Laundering Directive (MLD4)? Upcoming changes to due diligence, politically exposed persons (PEPs) checks and beneficial owners definitions are likely to increase the burden of research for firms.

How does your firm establish the level of due diligence required when onboarding new clients? The need to evidence a risk-based approach under MLD4 may pose a challenge, especially if firms are currently over-reliant on ‘established’ customer information such as PEPs lists. Firms opting for simplified due diligence (SDD) for clients may well be required to evidence how they arrived at their decision, with the likelihood of this increasing due to MLD4. This will help ensure that simplified due diligence is used compliantly and only when permitted.

This opens up the issue of de-risking. The regulator concedes that firms considering whole categories of customers too risky (or costly) to deal with could be disastrous for the industry and have wider consequences, as seen for example in the money remittance market.

It’s clear that the greater threat of financial crime requires greater controls (and this can mean greater upfront cost), however, with yearly losses attributed to fraud estimated to be in the tens of billions in the UK, the counter argument that firms stand to benefit financially from tackling and embedding new financial crime regulation is a compelling one. To continue to de-risk in this area may soon mean moving against the current in the industry, and to cut investment in systems and controls may result in firms failing to sufficiently protect customer outcomes, with the inevitable knock-on effect of regulatory scrutiny.

For more information, read our latest insight on embedding MLD4.



  • Consumers need more support to understand their options

  • Advisers may offer a limited range of products or have staff reward schemes that motivate sales over suitability

  • Consumers may reject paid-for financial advice because of the potential cost

  • Complex charging structures and poor transparency


A lack of availability of advice is not only restricted to the pensions arena; the financial services industry must find solutions to the lack of affordable advice available across many areas. How can you ensure consumers not only understand the benefits of advice, but are actively compelled to seek it? What can your firm do to raise awareness alongside the need to formulate affordable propositions? Which? found 58 per cent of those against using an adviser cited advice as being too expensive. How can your firm prove the benefits of financial advice against the upfront costs?

Tied into the affordability of propositions is the importance of transparency and trust. Indeed, a growing trust gap was found, in particular between consumers and independent financial advisers, with Warwick Business School giving independent advisors a ‘trust score’ of only 57 out of 100. How does your firm advocate transparency and work to narrow the trust gap?

Following the Financial Advice Market Review, it looks as though more clarity on advice and guidance definitions and liabilities is on the way. With this in mind, can your firm now harness simplified definitions of advice in order to make the contents and costs of advice better value (and therefore more attractive) for consumers?

Of course, risk must be fully taken into account against the risk appetite of the customer, but once a customer’s circumstances and the level of advice they need can be established consistently and delivered affordably using simplified advice models, will your firm be poised to come to market with a suitable advice proposition? Is there any other enabling work which might have to be performed internally?

For more information, read our summary of the Financial Advice Market Review.


The areas outlined above affect firms across many industry sectors, so many firms will find they have a vested interest in how they will navigate all three. If there is a parallel to be drawn across all of these areas, and indeed the FCA Business Plan as a whole, it is that proactive work will lead to future benefit for both firms and their customers. The firms that most effectively address these issues are likely to uncover the commercial successes that come with greater customer advocacy, engagement and, ultimately, a stronger and more stable brand.


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