What do the Chancellor’s Mansion House announcements mean for Financial Services?

What do the Chancellor’s Mansion House announcements mean for financial regulation?

By Caroline Wayman

The Chancellor’s announcements around reforming the redress landscape reaffirm the crucial role that the Financial Ombudsman plays in underpinning confidence in financial services.

Taking a hard look at how regulation has stacked up over time is right. We have an opportunity to reform the redress landscape in a way that works for today – and is fit for the future. The reforms should give industry and consumers alike greater clarity, offering more certainty on how the FCA and FOS should work together.

But the foundations of these changes need to be solid or the whole structure could wobble. The question now is how to ensure that the reforms work in practice. Guidance on the criteria for escalating issues is critical, as the government rightly recognises that the FCA can’t make decisions on individual complaints. Without a simple process and clear thresholds, the system could risk introducing more complexity than certainty.

What are the implications for pensions?

By Jason Whyte

Pensions adequacy remains a thorny issue that the Government will need to address. The current 8% contribution level was set by the Turner Report only to lift people out of poverty in retirement. In contrast to the UK, Australia has just reached its target of 12%. There is no doubt that many people need to save more to get the retirements they want.

One potential approach is to commit to increasing auto-enrolment contributions – but not immediately. Australia’s shift from 9% to 12% was phased in over a decade. Businesses and individuals may grumble at the additional cost, but changes that have been signposted well in advance are generally accepted better than sudden shifts. As a nation, we need to recognise the long-term economic and social benefits of higher retirement savings.

The Retail Distribution Review improved the quality of financial advice – but made it unaffordable for many mass market customers, who were left confused and even angry by their providers’ inability to help them navigate complex changes such as Pensions Freedoms. Providers in turn felt their hands were tied by the requirement for investment advice to be paid for rather than taken from product fees.

Targeted Support addresses this by allowing customers to be steered towards solutions that are designed to be suitable for groups of customers like them, rather than requiring more individualised advice. The Government hopes that this will be particularly helpful for customers with large cash savings who might be better served by investing, and for customers approaching pension drawdown without access to advice. The industry has so far responded positively to the proposals which, if successful, would help expand the free and low-cost options for customers needing help with their money.”

How will the reforms affect conduct in financial services?

By Molly Preleski

Reforms to the Senior Managers and Certification Regime (SMCR) are long-awaited – but this isn’t just about letting people off the hook. With the expansion of non-financial misconduct rules, the Chancellor has been clear that individual conduct in financial services will remain under rightful scrutiny.

The reforms recognise the sheer number of individuals subject to the rules and the burden this placed on firms. The Government has proposed bold steps to remove large swathes of the SMCR, such as the Certification Regime from the Financial Services and Markets Act (FSMA). The ultimate test now is how the FCA and PRA plan to implement changes into the rulebooks – only then will the benefits be seen.

And what about payments?

By Simon Williams

The announcement from the Payments Vision Delivery Committee confirms what some had expected, that a new Delivery Company will be set-up to deliver the next generation payments infrastructure for the UK, removing this from Pay.UK. While this addresses the ‘who’ aspects of the challenge of modernisation, it does not yet give a view on the critical aspect of how the funding model will work, and hence the commercial incentives for the industry.

This article was first published by Finance Day.