Like the NHS, the FCA is prioritising its workload so that it can focus on supporting the public during the pandemic. I bet Brexit has something to do with it too. Last week it announced that it was stopping or postponing some of its projects. So what are the implications of these pandemic-driven changes at the regulator for ordinary consumers?
The regulator has been pivotal in providing support such as mortgage and loan repayment holidays, but it’s had a knock-on effect on some of its consumer work. Below is a summary of what’s changing (or stopping altogether) and where you can find support now that those projects that have been put on hold.
Platform exit fees – FCA stopping work
The regulator had been concerned that exit fees (charges applied to investors when leaving an investment platform) lead to consumers staying with their platform to avoid charges.
It has worked closely with platforms to make sure that disincentives to switching are removed. Though some platforms have removed exit fees, some exit fees still remain. The FCA has announced this work will stop, though it will keep an eye on this area of the market and intervene if necessary. While this is understandable during a pandemic, unfortunately many customers are unaware of exit fees until they pay them.
The Single Easy Access Rate (SEAR) for cash savings – FCA stopping work
It’s irritating when the best rates or fees are only available to new customers, and the regulator agrees. The FCA had been looking at the different interest rates on cash savings accounts for new and existing customers and wanted to introduce SEAR, which would help loyal customers get better rates on cash savings. However, because of ultra-low interest rates, it’s stopping work on SEAR.
That’s because the interest rate cuts make the gap between rates offered to new and existing customers closer than before. While we can see the logic, this is a short-term view. Hopefully, it will revisit the idea once rates start to rise again.
As well as reviewing cash rates offered by high street and online banks, it’s worth checking out Hargreaves Lansdown’s Active Savings and AJ Bell’s Cash Savings which have partnered with savings account providers to bring you the best rates in the country.
Cash savings accounts are great for helping you build emergency cash reserves, but remember that too much cash isn’t great in the long term, ultra-low interest rates and high inflation will eat away at your savings. In the current environment, that’s an increasingly likely possibility —the Consumer Price Index 12-month inflation rate (CPI), excluding owner-occupier housing costs, rose to 0.7% in October, up from 0.5% in September. Take some risk for your long-term investments (see five simple rules to investing) and you should invest for the long term.
Duty of Care work – FCA postponing work
The third part of the announcement is about firms it regulates (like financial advisers), but we’re mentioning it because the outcome should be positive for investors. The FCA wants to improve how firms ensure they protect their customers.
The FCA has many rules and regulations that firms must follow, but it’s looking to go one step further. One of the options is a Duty of Care, which will encourage a culture of ‘what is right for the customer?’ rather than ‘what fits the rules?’ Of course, most firms act in their clients’ best interests, but this should strengthen that culture.
The regulator tends to go through several stages when it comes to adding or changing its rules. It works with the firms it regulates, which means a lot of consultation up front and analysis before proposing its changes. The Duty of Care work is going to continue, but the consultation phase won’t start now until the new year due to the pandemic.