The chair of the Financial Conduct Authority (FCA), Charles Randell, said that the financial services industry has not kept up with technological developments deeming its systems “analogue” in a future that is “digital”.
But change comes at a cost.
The industry will need reshaping after the coronavirus crisis, and the burden will most likely fall on to the individual firms.
Severe change
In a speech given at a virtual roundtable of bank chairs hosted by UK Finance, Randell said that the coronavirus outbreak has brought to light many truths about the sector and its client base.
“We have too much debt. We don’t save enough. When people do save, they are too often persuaded to buy unsuitable investments.
“We still work in analogue ways when the future is digital. All of this was true before, but the scale of these challenges has appeared with a speed and severity beyond anything I had imagined.”
Time for change
Randell said that it is time for the industry to provide better products for ordinary retail investors and incentivise them to save.
“We need to make it easy for people to save into simple products that meet their needs. With policy rates at all-time lows, there will be continuing pressure on investment returns.
“So it will be more important than ever for ordinary retail investors to have access to investments which are good value for money: which help savers achieve a return that can beat inflation cheaply and without taking on more risk than they can afford.
“The experience of the last several months has added to the questions we have had about the value provided by some investment products, including those marketed through long and expensive distribution chains,” he added.
Get ready for a further levy increase
Randell continued: “Coronavirus has reinforced my concerns.
“As we assess the fallout of the pandemic, we need to be open to redesigning the system so that it better protects ordinary retail investors from investments which are highly unlikely to be suitable for them, and ensures that firms which market unsuitable investments don’t pass the bill for their misconduct on to well-run firms through the Financial Services Compensation Scheme (FSCS).
“The FSCS Compensation Costs levy is already at an unacceptable level; and I am sorry to say that it is likely to increase, as some firms will fail during this crisis.
The online ads issue
Randell took the opportunity to hit back at internet giants like Google for their role in promoting and marketing fraudulent schemes.
“We need a framework to stop social media platforms and search engines from promoting unsuitable investments, including scams, to ordinary retail consumers.
“It is frankly absurd that the FCA is paying hundreds of thousands of pounds to Google to warn consumers against investment advertisements from which Google is already receiving millions in revenue,” he said.
In December 2019, International Adviser revealed that the FCA was working with Google to find a solution to put an end to scams and misleading ads appearing on the firm’s search engine, especially when it came to the promotion of mini-bonds.
The regulator also revealed that, in less than three months between January and 10 March 2020, it had forked out nearly £90,000 ($112,902, €100,140) to pay for its own Google adverts in the fight against fraudulent ones.
