October
With growing speculation and rumours pervading the media in advance of the long-awaited first Budget Statement from the new government, the month opened with the FCA announcing in a portfolio letter to advisory firm CEOs that it will carry out a review of consolidation within the advice market. It’s been eight years since the regulator’s last consolidator review, which revealed some examples of malpractice. The FCA says it’s concerned about “an increase in the acquisition of firms or their assets over the last two years. While industry consolidation can provide benefits, various types of harm can occur where this is not done in a prudent manner with effective controls to promote good outcomes.”
The regulator also announced it will be publishing further information and its next steps regarding its review of ongoing advice “later this year”. Advice firms were reminded they should make sure their ongoing service delivers fair value, and all charges must be clearly explained to clients, along with cancellation options.
Another priority for the FCA is to continue the consultation on its polluter pays liability model, with the intention of compelling advice firms to hold extra capital to cover compensation claims, as part of reducing FSCS (Financial Services Compensation Scheme) levies. Next steps are expected to be revealed “before the end of 2024”. It is also set to report to the market in the first quarter of 2025 on its follow-up work regarding the thematic review of retirement income advice.
In October, the regulator made it known it has not changed its stance on firms keeping cryptocurrency products out of the portfolios of retail investors, even after the rules were relaxed for professional investors. The position remains that crypto ETFs are ill-suited as retail investments and, under the same rules, multi-asset funds or portfolios aimed at consumer investors must not buy these assets, even if popular among the unadvised.
On a tangent to crypto, the FCA divulged that it was cracking down on social media ‘finfluencers’, with 20 individuals being interviewed under caution – targeted because they may be hyping financial services products illegally. There is concern they are flaunting a lifestyle that young followers want to emulate via investment ‘offers’, but without understanding their livelihoods and life savings are at risk.
Mid-month, pensions minister Emma Reynolds – with a foot in both the Treasury and DWP – outlined at the PLSA’s (Pensions and Lifetime Savings Association) annual conference the government’s commitments on small pot consolidation, value for money and pension products producing growth for savers. “Our priority,” she said, “is to unlock the true potential of the UK’s £2 trillion pensions industry.” Reform involving pot consolidation “will improve value for savers and remove costs from the system and also support investment opportunities.” The minister confirmed the government is examining its options concerning making it mandatory for DC schemes to invest in UK assets.
November
Early in the month, the FCA’s Dear CEO letter to SIPP providers indicated several areas where they need to improve compliance with Consumer Duty. There are “growing concerns” about how some providers are handling pension scheme money and assets, plus issues around the accuracy of firms’ records. The regulator was specifically perturbed by some providers remaining hazy about their obligations under the Duty as a distributor, even though they understood their manufacturing role. Increased supervisory action will follow.
The FCA issued a policy statement in November focused on firms interested in operating a pensions dashboard service and needing regulatory permission to do this. It set out the high standards it expects from all FCA-regulated firms operating a dashboard. The overriding theme is that dashboards must be in places where consumers can “confidently and positively engage with their pensions”, and adequate safeguards are needed from the outset to avoid the risk of loss of confidence among users.
Mansion House Speech
On 14 November, Rachel Reeves delivered her first message to the financial sector audience at Mansion House, with the predicted focus on investment in the UK economy leading to growth. She homed in on the potential of the financial services industry to play a role in making the UK more competitive and generating economic growth, the top priority of the government.
The Chancellor’s key objectives are increasing private investment and reforming the economy. As well as attracting investment from around the world, boosting private investment would necessitate working in alliance with business. She specifically called for the co-operation of the financial services sector, “the crown jewel in our economy” that employs 1.2 million people and makes up 9% of the UK’s economic output. An inaugural Financial Services Growth and Competitiveness Strategy is set to be published in Spring 2025 aiming to dismantle barriers to growth and investment in the sector.
Reeves turned her attention to pensions and how schemes’ capital could be used to support infrastructure projects as well as companies starting up or scaling up. The Pensions Investment Review led by Emma Reynolds contains plans to establish Australian/Canadian-style ‘megafunds’ to help ignite economic growth. A Pension Scheme Bill in 2025 will legislate for megafunds to consolidate the DC market, with the goal of delivering better outcomes for savers while investing for growth. Alongside this, Local Government Pension Scheme assets would be consolidated into pools. Altogether, this could provide £80 billion for investing in private equity, and in vital infrastructure projects including energy, housing and transport.
The Chancellor emphasised that market regulators are expected to “fully support this government’s ambitions on economic growth”. Strategic guidance provided to regulators is now under review, and the importance of growth will become a prominent guiding light in addition to consumer protection and conserving a well-functioning market.
At the end of November, the FCA announced a fresh consultation (CP24-2 Part 2) on its controversial plan to publish ongoing enforcement activity, taking account of the backlash to its initial ‘naming and shaming’ proposals. Revised proposals increase the focus on the ‘public interest’ test. Interested parties have until 17 February 2025 to contribute feedback.
December
This month brought a flurry of announcements from the FCA. As anticipated, the regulator updated the sector regarding the Advice Guidance Boundary Review, issuing a high level consultation paper (CP24/27) setting out proposals for targeted support in non-advised DC (Defined Contribution) pensions as part of closing the advice gap. It seeks feedback on establishing this new level of support to sit between guidance-based services and bespoke advice, with the aim of helping consumers “at scale, make effective, timely and properly informed decisions about their pensions”. Notably, providers have been warned not to use these reforms as a means to sell their own products. The consultation deadline is 13 February 2025.
The FCA also published a discussion paper (DP24/3) looking for input from stakeholders on certain areas of its regulatory framework that might need to evolve to better support consumers. This encompasses: the rules around projections, tools and modellers; requirements for individual DC pension transfers and consolidation; and the regulations governing SIPPs. Comments are sought by 27 February 2025.
Alongside the above, the regulator published the findings of its review into firms’ approaches to completing their first annual Consumer Duty Board Report. Responding to firms asking for best practice examples and areas for improvement, the regulator pointed to good and poor practice to help everyone learn and improve. ‘Good practice’ reports comprised: clear outcomes focus; good quality data; analysis of different customer types; clear processes for report production; and a focus on culture throughout the firm. Areas for improvement among ‘poor practice’ reports are: better data quality; a comprehensive view across distribution chains; analysis of different customer types; challenge from the Board; and taking effective action.
Regarding Consumer Duty, the FCA also revealed its priorities for the remainder of 2024/25. The three criteria it is applying when deciding what to tackle first are whether this is an area where sharing good/poor practice will bring better outcomes, whether the scale or urgency of a specific harm requires action, or whether more data is needed to fathom what is actually happening.
In something of a bombshell, news has come that the Chancellor has indefinitely delayed the second phase of the government’s pensions review that was set to focus on the adequacy of retirement savings via auto-enrolment. The apparent reason is to avoid putting more pressure on company finances after employers’ national insurance and minimum wage costs rose in the Autumn Budget.
Still to possibly come from the FCA are draft rules for a new UK retail disclosure framework to replace the PRIIPs regime and commentary on its ongoing advice evaluation and “polluter pays” consultation.
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