The FCA published a podcast interview with Interim Chief Executive Chris Woolard. Mr Woolard discusses how the FCA has rapidly reprioritized its work in light of the Coronavirus pandemic and talks about future business planning. Below is a summary of the interview.
Q: The FCA has introduced a series of emergency measures and regulation since the world was hit by a pandemic. Can you talk us through the crisis planning process, the main areas of focus and why you've taken the approach that you have?
The Treasury, the Bank of England and the FCA are trying to ensure that as many firms and consumers can come out the other side of this crisis in the best shape possible.
The FCA interventions fall broadly into three camps. The first has been to ensure that people who have been impacted by this unprecedented situation are able to get some degree of temporary relief from payments or other commitments that they have that will help them cope with the crisis, notably around mortgages, credit cards, and car loans.
The second area is ensuring that financial markets work well. The FCA has kept markets open and orderly and coped with the specific circumstances of the coronavirus.
Finally, it has intervened where there have been aspects of the market that have not appeared to be working well during the crisis, notably around Business Interruption (BI) insurance.
Q: Can you tell us about Business Interruption insurance? Why is this important at the moment?
Business Interruption Insurance usually covers damage to business premises. It can also cover other risks including premises closure by the authorities, illness on or in the vicinity of the premises. Some Business Interruption policies are paying out in the pandemic, but others are in dispute. Those disputes matter incredibly to the policyholders, but the insurers also have the right to defend their own wording.
Disputes between policyholders and customers often go to court and can take many years to resolve. The FCA is trying to reduce that period of uncertainty by securing an agreement from a sample of insurers whose wording has applicability across the market to come to court on an agreed voluntary basis. This is likely to begin in July. The FCA is seeking a clear set of rulings on which policies are likely to be engaged and therefore need to be paid out. This clarity is important for the industry as a whole.
Q: You've recently announced further measures for consumers. Can you say a bit more about what you are trying to achieve?
There's a series of interventions around mortgages and other credit products. The Chancellor announced a mortgage holiday period of up to 90 days for people who are affected by the crisis and the FCA introduced guidance rules to help make that happen.
1.7m people have applied for a mortgage holiday. Half of that group are people who can afford to pay now. 40% of that group are still financially impacted by coronavirus, but their finances will improve when lockdown is lifted, so they will benefit from an extension to the mortgage holiday period. Those with serious debt before Coronavirus require formal structured debt advice and payment plans.
The FCA is also reviewing measures relating to other credit products including credit cards, insurance premiums and loans. The sellers of these products should offer a 90-day payment freeze to customers financially impacted by Coronavirus.
Q: Will you carry this through and review it if lockdown measures are prolonged for any reason over the coming months?
Yes, the FCA recognizes that this is an ongoing situation. The lenders will bear the cost of these measures in the short-term through their own liquidity and ability to collect payments. Consumers will bear the costs in the long term because their credit products will have been extended. As the crisis eases customers will be able to return to work and continue their payments, but if further restrictions are implemented then the FCA will need to adjust to those circumstances.
Q: The FCA had to adapt in the same way as other businesses to a new way of life; this has meant a rapid rearrangement of work. What does this look like now and are there any changes to planned activity at this time?
The majority of FCA staff are working from home, with a small operation in the office and out on the ground particularly for the FCA intelligence and forensic services and enforcement activity.
The FCA has had to reprioritize significantly. Two thirds of planned activity has been postponed, in order to focus on ensuring firms are serving their consumers in this difficult time, especially those who are vulnerable. Postponed projects will be phased back in later on this year, to further enhance consumer protection.
The FCA has published a Business Plan which sets out the areas of focus for ongoing work. More work is needed on retail investments, the consumer credit market and payments firms, which the public increasingly rely on. The FCA is also reviewing how big data and the growth of more open systems could affect pricing for consumers in the future and indeed the future impact of competition in the market.
As people’s finances are affected by the impact of the pandemic, retail customers will seek better rates of return. The pandemic has also seen an increase in electronic payments, and the future of cash will need to be considered.
Q: The Business Plan also lays out future plans to strengthen markets and the importance of working towards the zero-carbon economy. How will the FCA deliver on these plans in light of current circumstances?
The adaptation of the economy towards zero carbon is really important to the financial sector. There has been a growth of “green finance” and the issuance of green bonds or other sort of green investments and that poses some challenges.
The FCA needs to ensure there's real confidence in that market and must consider which standards need to be adopted in the UK and internationally to ensure investors invest in genuinely green products.
Q: What are the focus areas for enforcement activity and how do you plan to continue with this work for the rest of the year?
The FCA is particularly focusing on scams. Some traditional scams have been rebranded for coronavirus. There could be an increased risk profile here for consumers who may be worried about the depreciation of their pension savings or other assets and might be drawn into schemes that appear to offer a greater rate of return. That's been a problem caused by the low interest environment for many years and its accentuated by the crisis. The FCA enforcement activity will support its wider business plan priorities, in relation to retail investments and how the consumer credit market functions.
Q: What are your ambitions for the transformation of the FCA? For example, the data we collect, how we analyze, manage and share intelligence across the organization?
The fifth priority within the FCA Business Plan is its transformation. There is a switch from traditional financial services players to the challenge from incoming new players into the market which rely on technology to run their businesses and provide the interface with their consumers. The FCA needs to understand how those business models are developing, including the benefits and potential risks for consumers in the future.
To listen to the full podcast, click here.