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FCA admits more execution-only could increase consumer harm

  • 17/12/2019
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FCA admits more execution-only could increase consumer harm
The Financial Conduct Authority (FCA) has admitted that increasing execution-only activity heightens the risk of harm to a consumer who would be better supported by taking advice.


In a discussion paper about the advance of open finance, the regulator said: “Reducing the friction associated with transacting without advice (execution-only) also increases the chances of harm to a consumer where they would have been better to take advice”.

It also noted that easing the process for consumers to complete large financial transactions independently could lead to harm where advice is not taken.

And the FCA admitted that technology developments such as automatic switching of products could result in consumers becoming focused “solely on price over other factors affecting suitability.”

The FCA highlighted these risks as part of its call for input paper discussing the opportunities and risks from open finance, arising as financial institutions and third-party providers are given greater access by consumers to their financial data.

However, these warnings appear to contradict much of the thinking behind the FCA’s Mortgages Market Study (MMS) published this year, which includes the encouraging of more execution-only business.

The FCA also focused on mortgage pricing in its MMS, reporting that around 70 per cent of consumers received the cheapest suitable mortgage in the data it analysed and stating that it wants solutions to help more borrowers identify the cheapest deal for them.

Research conducted for the FCA and published alongside the MMS revealed that consumers were “not always aware of consequences” of execution-only mortgage purchases.


Greater access to borrower data

In its call for input about open finance, the FCA noted that financial institutions and third-party providers would need greater access to customer data than at present to make an impact.

This would include: being able to see mortgage product and payment history data; data on payment, savings and current accounts and other income.

And it suggested firms would want access to change payments, request a payment holiday, and alter or switch products on a borrower’s behalf.

The FCA highlighted three key market issues that it believes could be helped by the developing open finance technology with access to this data.

They are:

  • Consumers who do not switch and end up paying more through the loyalty penalty while competition reduces.
  • Customers  who find it hard to find the cheapest, suitable mortgage.
  • Consumers who may be ‘good risks’ but struggle to prove it.


Improve consumer access

In a statement launching the consultation, the FCA said that by making it easier for consumers and businesses to compare price and product features and switch product or provider, open finance could be beneficial in the general insurance, cash savings and mortgage markets.

It could help widen access to advice and support, boost efficiencies for businesses and access to credit, and spur innovation, it added.

FCA executive director of strategy and competition Christopher Woolard said: “Data and technology are increasingly driving changes in financial markets.

“As a regulator, we need to understand how this change will shape markets and shape regulation in the future.

“We want to understand how open finance can develop to best meet consumers’ needs and enhance competition in the interests of consumers. We also want to understand what role we should play in supporting it.”

The consultation is open until 17 March 2020 and the FCA will publish a feedback statement in summer 2020.


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