Released this week, ‘Sector Views’ is the FCA perspective on “the way the financial environment is changing and the impact of these changes on consumers and market effectiveness.” It gives us a clear indication of the areas where the FCA see potential risk of harm to consumers and, for compliance professionals, a ‘heads up’ of what to expect when the FCA release their annual business plan which we are expecting in April.

But are these new issues, or should they be familiar territory to compliance professionals?

The FCA has highlighted 4 key drivers of change that it sees as giving rise to the greatest risk of harm to consumers. It’s no surprise to see Brexit continues to feature given the ongoing uncertainty about the nature of our future relationship with our European neighbours. Perhaps a sign that the FCA have concerns that those future relationships might take longer than anticipated to resolve is their indication that they will announce plans to reopen notifications under Temporary Permission Regime later in 2020 for EEA firms wishing to transact business in the UK.

The four key drivers identified are:

  • the macroeconomic environment
  • the potential impact of Brexit
  • societal changes and their impact on the financial needs of different generations
  • technology developments

In assessing the context for likely harm to consumers, the FCA have highlighted two common themes that they believe lead to much of the specific harm faced by consumers: poor culture and low consumer engagement.

Within the London market in particular, poor culture and behaviour has been the subject of many headlines in the last year or two – headlines that certainly haven’t portrayed the industry in a good light and will have had the corporate PR teams working hard to try and repair damaged reputations. With Lloyd’s now taking a strong lead on culture and behaviour, there can be no hiding the fact it is a risk factor that boards need to ensure they are well briefed on. In our experience, what we are seeing from the more enlightened companies is a real desire to embed corporate culture within their risk frameworks and ensure it is aligned with all their other policies. The FCA is certainly indicating that it will be targeting change along those lines and cites research indicating that 71% of insurance professionals believe that culture needs to change. The other 29% may no longer have any discretion on the subject!

As to low consumer engagement, it is perhaps instructive that the FCA see this as being an issue that underlies so many of the headline themes. No consumer willingly consents to suffer harm – the FCA sees the issue as being one driven by a lack of information and understanding on the part of consumers. They’ve acknowledged improvements resulting from changes to the renewal rules but highlighted the increasing risk of personalised price discrimination.

So what are the 7 key themes the FCA have highlighted?

  • Pricing practices in personal lines still penalise loyal customers
  • Add-on prices continue to cause harm to consumers
  • Complex distribution chains and products are contributing to poor value
  • Consumers with specific needs are facing barriers to insurance products
  • Misuse of customer data can harm consumers, particularly vulnerable consumers
  • Non-financial misconduct in the London Market poses a threat to market integrity
  • Higher prices from inefficiencies in the London Market

We’ve already seen action from the FCA on most of these themes, but the nature of the comments in this Sector View suggest the FCA feel the actions taken so far have yet to fully redress the harm they see being caused to consumers. Additionally, with so many different references to culture and integrity, it suggests the FCA feel that there is perhaps an underlying causation behind many of the issues.

If we were to look at some of the currently ongoing consultations – and the phase they are at, it does perhaps give us a greater insight into the evidence feeding into this Sector View. To us, it certainly feels like the areas of potential harm being examined by the FCA should be familiar territory to most compliance professionals.

GC19/3: Guidance for firms on the fair treatment of vulnerable customers.

The consultation period has now closed and we are expecting a response sometime in H1 2020. Whether firms and the FCA see ‘eye to eye’ on questions such as improving outcomes for vulnerable customers, the impact on costs for affected firms and whether or not firms feel the FCA has gone far enough or additional policy interventions might be required. In our view, the Sector View analysis is suggesting the FCA feels it may yet need to implement additional rules. At the very least, firms should be considering what their own data tells them and how they might respond to requests for additional information from the FCA.

MS18/1: General insurance pricing practices market study

A subject I have written about at length in the past following the super-complaint from the Competition & Markets Authority, we are expecting a final market study report and consultation paper imminently – Q1 2020 was the date promised by the FCA.

Insurance Distribution

The FCA issued its last major rules on this in May 2018, but since then we have seen Lloyd’s begin to explore the issue and it is not a major leap to conclude that Lloyd’s and the FCA have been in discussions about the findings in a private report that Lloyd’s produced in September 2019. The two seem far too closely linked to be pure coincidence!


It might be the preserve of relatively few to claim a level of excitement as the release of the FCA Business Plan in April each year approaches, but that is where I find myself! This weeks Sector View has given us some strong clues about what to expect in the Annual Business Plan and the reality is that most firms involved in the production, pricing and distribution of insurance products are likely to find themselves needing to study closely the steps being set out by the FCA.

We don’t yet know exactly when the Business Plan will be released, but if you would like to discuss the ways your firm can be prepared, given the statements made in the FCA Sector View, please do give me a call in complete confidence.


Kenneth Underhill
Implement Compliance Solutions and Resources Ltd
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