On 1 April 2014 the Financial Conduct Agency (FCA) officially takes over from the Financial Standards Agency (FSA) as the regulator of the financial services industry in the UK (no April’s Fools, honest). The FCA has published its ‘Risk Outlook’ that focusses on the issues and topics that the FCA will turn its attention to in the coming months. The outlook is focussed on achieving the underlying aim of improving the outcomes for consumers of financial products and it outlines the ‘prudential landscape’ that is inhabited by financial firms and the conduct of those firms. The outlook also identifies seven ‘forward looking areas of focus’ that represent significant risk to the FCA’s achievement of its goals. Of key importance to anyone involved in helping those with financial problems is the FCA’s warning that the growth of consumer credit may lead to growing levels of unaffordable debt.
It is surprising that just a scant few years after the ‘credit crunch’ we are already seeing warnings about over-indebtedness arising from growing levels of personal debt. One could easily have thought that the days of easily available personal credit are behind us. Surely, gone are the days of automatic credit card limit rises and ‘just sign here’ loans? Perhaps not, according to the FCA.
Of particular concern to the FCA are revolving credit products such as overdrafts and credit cards. Also the complexity of certain products such as unexpected fees that can be incurred in overdrafts and credit cards. Thirdly, the FCA has concerns regarding short term lending such as ‘pay day loans’ and the extent to which the industry has been insulated against poor lending decisions by the high level of interest and fees charged, which means that poor underwriting decisions are cushioned by the high levels of income derived from the loans overall. The FCA has also identified the possibility of payday loan borrowers being treated unfairly if they cannot afford to repay their loans. Finally, the FCA has raised the important question of whether unscrupulous firms are profiting from individuals’ debt problems by providing poor quality debt management services and the high fees and poor outcomes suffered by consumers as a result.
The FSA has come under intense scrutiny and has received widespread criticism over its role as regulator in the run up to the biggest financial crisis seen in over a generation. The FCA states that its role is to flag issues of concern before they become major problems. One can only hope that the FCA does a better job than its predecessor in protecting the public from major problems before they occur rather than closing the stable door after the horse has bolted.