Access to Financial Services in the UK - FCA

[Pages:35]Access to Financial Services in the UK

May 2016

Occasional Paper 17

Encouraging debate among academics, practitioners and policymakers in all aspects of financial regulation.

Financial Conduct Authority .uk

Occasional Paper 17

Access to Financial Services in the UK

FCA Occasional Papers in financial regulation

The FCA is committed to encouraging debate on all aspects of financial regulation and to creating rigorous evidence to support its decision-making. To facilitate this, we publish a series of Occasional Papers, extending across economics and other disciplines. Occasional Papers contribute to the debate on specific issues relevant to the FCA's work. The main factor in accepting papers is that they should make substantial contributions to knowledge and understanding of financial regulation. In order to stimulate interest and debate, the FCA welcomes the opportunity to publish controversial and challenging material. If you want to contribute to this series or comment on these papers, please contact insight@.uk.

Disclaimer

Occasional Papers contribute to the work of the FCA by providing rigorous research results and stimulating debate. While they may not necessarily represent the position of the FCA, they are one source of evidence that the FCA may use while discharging its functions and to inform its views. The FCA endeavours to ensure that research outputs are correct, through checks including independent referee reports, but the nature of such research and choice of research methods is a matter for the authors using their expert judgement. To the extent that Occasional Papers contain any errors or omissions, including as to the content or effect of legislation, they should be attributed to the individual authors, rather than to the FCA.

These Occasional Papers are available on our website: .uk. Comments are welcome; please address them to the authors listed below.

Authors

Sharon Collard, Martin Coppack, Jonquil Lowe, & Simon Sarkar.

(Authors' names appear in alphabetical order.)

Biographical note

Sharon Collard is Professor of Personal Finance Capability at The Open University and Jonquil Lowe is a Lecturer in Personal Finance at The Open University. Martin Coppack and Simon Sarkar both work in the Consumer Insight Department at the FCA.

Acknowledgements

This paper has benefited from comments and assistance from colleagues at the Financial Conduct Authority. We especially thank Jo Hill, Jonathan Phelan, Attricia Archer, Jenny Barrow, Gareth Thomas, Richard Bennett and John O'Hara for their expert guidance, comments and support for this paper. Linda Woodall deserves a special thank you for her passion for this topic and enduring support throughout.

We thank Reader Carol Brennan from Queen Margaret University for reviewing the paper as an academic expert in the field of consumer policy. Thanks also go to Cara Bloomfield, Laura Williams, Michelle Poku, Nikki Hall and David Graham for providing a thorough consultation process and ensuring deadlines were met.

As authors we have relied heavily on the primary research the FCA commissioned to understand what it is like to be excluded from financial services. Thank you Becky Rowe and team at Revealing Reality (ESRO) and to the people and organisations who took part in their research.

May 2016

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Occasional Paper 17

Access to Financial Services in the UK

Finally we thank contributors from consumer organisations, trade bodies and firms for their help and assistance too. A list of organisations consulted as a part of this work can be found in Appendix 1.

All errors are our own. We welcome feedback on this paper, via contact with the authors. Please contact Martin Coppack (martin.coppack@.uk 020 7066 6064).

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Occasional Paper 17

Contents

Access to Financial Services in the UK

Foreword

Executive summary

1 Introduction: why is access an issue?

1.1 Access, financial exclusion and consumer vulnerability 1.2 Why is access to financial services important? 1.3 Getting access right: whose role is it? 1.4 Why should firms be interested in access?

2 Access: what role could regulators play?

2.1 The FCA's Competition Objective 2.2 The FCA's Consumer Protection Objective 2.3 The FCA's public sector equality duty 2.4 Access: what is the FCA's function?

3 Research methods

3.1 Desk research 3.2 Qualitative research

4 Digital transformation

4.1 Context 4.2 Current regulation 4.3 Issues 4.4 Through a consumer's eyes: what might good look like? 4.5 What is happening so far?

5 Compliance and crime prevention

5.1 Context 5.2 Current regulation 5.3 Issues 5.4 Through a consumer's eyes: what might good look like? 5.5 What is happening so far?

6 Automated processes

6.1 Context 6.2 Current regulation 6.3 Issues 6.4 Through a consumer's eyes: what might good look like? 6.5 What is happening so far?

7 Segmented markets

7.1 Context 7.2 Current regulation 7.3 Issues 7.4 Through a consumer's eyes: what might good look like? 7.5 What is happening so far?

5

7

21

22 26 29 30

32

33 33 35 36

40

40 41

43

43 44 45 51 52

58

58 59 63 69 70

75

75 78 79 85 85

89

89 94 95 101 101

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Occasional Paper 17

Access to Financial Services in the UK

8 Ageing population

106

8.1 Context

106

8.2 Current regulation

108

8.3 Issues

109

8.4 Through a consumer's eyes: what might good look like?

115

8.5 What is happening so far?

116

9 From issues to solutions

119

9.1 Identifying the issues

119

9.2 Driving change

120

9.3 Indirect effects

123

9.4 From issues to solutions

123

9.5 A way forward?

131

9.6 Concluding remarks

132

References

133

Appendix 1: Organisations engaged as part of the FCA's access programme 154

Consumer organisations

154

Industry Representatives

154

Other

155

Appendix 2: Research methods

156

Consumer sample and recruitment

156

Interview approach

157

Additional interviews

158

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Access to Financial Services in the UK

Foreword

It is very easy to take financial services for granted. For most people, they are readily available. Yet for a significant number of people they do not seem like an option. Without access to financial services, consumers can find themselves shut out of modern life. They are unable to communicate their needs and wants to firms to influence the design, delivery and price of vital products like mortgages, insurance or even bank accounts.

Being unable to access financial services seriously undermines people's ability to take responsibility for their own financial well-being and resilience.

Resolving this is complex. Ensuring that consumers who would be turned away in the normal course of business have access to services can create other challenges, such as requiring cross-subsidy from public funding or other customers. So interventions must be considered carefully.

Through our regulatory work we see how some people find it difficult to engage with financial services. Our work on the UK's ageing population, for example, has shown us that this is an increasing problem for the fastest growing part of our population. We have repeatedly heard from firms, consumer organisations and other regulators about the difficulties a wide range of consumers face when trying to access products and services which they can afford and which meet their needs.

We have already undertaken significant work in this area. This includes working with HM Treasury on the recent Financial Advice Markets Review (FAMR), our efforts to simplify consumer communications and our work on making shopping around easier and clearer in annuities and cash savings.

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

That is why we commissioned this Occasional Paper. We want it to act as a means of bringing together a range of issues for debate, culminating in a series of questions for the regulator and other stakeholders to consider. In the spirit of our occasional paper series we have asked academic peers and our own expert staff to explore these themes and put forward items for discussion, rather than present an `FCA view'.

As such, this paper does not seek to cover all of the work already done by the FCA or others.

Instead, it aims to stimulate ideas and solutions to foster a culture of access and inclusion throughout retail financial services.

The depth of analysis contained within this Occasional Paper constitutes a meaningful step forward, but we acknowledge there are a multitude of questions to consider, which will require an ongoing commitment from firms, regulators, Government and consumer organisations to work together. We hope this paper provides a further stimulus to do so.

Christopher Woolard Director, Strategy & Competition

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

Christopher Woolard Director, Strategy & Competition

Access to Financial Services in the UK

Executive summary

Increasingly, UK individuals and households are expected to take responsibility for their own financial well-being. Yet they can only do this if they have access to financial services that meet their changing needs throughout their lifetime. There is also growing understanding that consumers' ability to access these services helps to improve market integrity, drive competition and promote financial stability and economic growth. However, potentially millions of UK consumers cannot use the services that would help them meet their needs and play their wider role in financial markets and the economy.

An earlier Occasional Paper commissioned by the FCA analysed the experience of vulnerable consumers in financial markets (Coppack et al, 2015). Access was one of the problems identified. But access does not just affect the vulnerable - it affects consumers across the spectrum. This situation is not static and new access issues emerge, often unexpectedly, because of social and technological change.

In a market-based system, consumers do not have an automatic right to receive products and services, nor firms an obligation to provide them unless specific universal obligations are legislated for (for example in telecoms). This means it is often not obvious who should take responsibility for access issues. One of this Occasional Paper's key purposes is to explore which stakeholders may be able to drive improvements and, in particular, how much access issues may come within the scope of the financial regulator. It aims to open up discussion about the nature, scale and impact of access issues, and how to resolve them. It also seeks to begin a new conversation, stimulate ideas and foster a culture of access and inclusion throughout retail financial services. To achieve this will require collaboration between firms, regulators, the government and consumer organisations.

Access is the ability of consumers to engage with and use the financial products and services they need over their lifetime.

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