Andrew Megson, Executive Chairman of My Pension Expert, discusses how one can best safeguard their pension in a time of crisis.
Pension panic: it is a common occurrence as people approach retirement. However, the onset of the coronavirus pandemic has created a new surge of it rippling throughout Britain.
As of mid-June, more than one in four UK workers had been furloughed, while over 2.6 million self-employed people had applied for financial support from the Government. Worse still, unemployment is set to reach 3.5 million by the end of 2020, according to British business executives.
These startling statistics illustrate just how many people’s livelihoods have been affected by the pandemic. The crisis has brought about financial hardship for millions, which in turn has resulted in a significant increase in consumer demand for financial advice, credit and support.
For many people, their pension pot has taken on added importance. Whether seeking access to these funds in the short-term or re-evaluating their long-term strategy, pensions have been put under the spotlight.
You might have seen or heard the term pension panic over recent weeks, but what does it mean?
Well, firstly, it is important to note that pension panic is not a new phenomenon brought about by COVID-19. It essentially refers to people who get closer to retirement age and realise – or feel – that they are not financially prepared. They worry if they have enough money to retire comfortably, if their pension pot is “working hard enough” for them, and how (and when) can they access their cash.
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Yet there can be no denying that these important questions have become more prominent as a result of the pandemic – sudden changes in people’s financial circumstances has understandably resulted in a palpable sense of pension panic among an increasing number of consumers. This in turn can lead to potentially rash, ill-advised decisions.
Sadly, pension scammers have also been seeking to capitalise on this panic.
Most consumers think they are savvy enough to spot a scam; however, if they are swept up in a pension panic, it can be easy to overlook the red flags. Indeed, research carried out by Action Fraud revealed that there were more than 2,100 case of fraud in the first five months of 2020, with losses resulting from fraudulent activity amounting to £5.14 million.
Pension scammers will come in many shapes and sizes. Some claim to offer “free pension reviews”, always concluding that victims’ pension pots could offer higher returns if placed in unusual investments such as biofuels, forestry or storage units. Others promise consumers an instant injection of cash by falsely telling them they can access their funds before the age of 55 (early pension withdrawal could result in a tax bill of 55%). There remain many, too, who simply try their luck by illegally cold-calling potential victims in a bid to get their hands on people’s hard-earned savings.
Pension savers must remember that if they have any suspicions about the legitimacy of a website or business then they can search the company on the Financial Conduct Authority’s (FCA) Financial Services Register. If they are not on the register, then it is likely a scam.
So, putting scammers to one side, how can one avoid being overcome by pension panic and making ill-fated financial decisions? In short, people must seek advice. Independent, considered, tailored advice from a trained individual or a reputable company.
The FCA strongly recommends seeking financial advice if an individual wants to cash-in a pension worth more than £30,000. But this does not mean those wanting to cash-in a smaller sum should overlook advice.
Why would people be reluctant to seek advice? Some consumers might think advice is unnecessary – that they can devise their own pension strategy without consulting anyone else. Others will simply have been enrolled on their employer’s pension scheme and given it little further thought. And a sizeable proportion of consumers rule out pension advice because they believe it would be too expensive.
The FCA strongly recommends seeking financial advice if an individual wants to cash-in a pension worth more than £30,000.
This is untrue. In fact, this is a dangerous mindset that must be avoided. Pension advice is necessary for all, and it does not come with a prohibitively large price tag. The question really is whether you can afford not to get pension advice.
It may seem like an obvious point, but there is no one-size-fits-all model for retirement finance. While some consumers may know the basics, they might not understand how to maximise their pension pots to achieve a more comfortable retirement.
People may assume the most logical option for them is to leave their pension pot as long as possible and watch its value increase over the years. However, this might not be the best route for them and could cause them to lose out financially.
There is a plethora of options available. Annuities, for example, are a retirement income product that is bought with a pension pot; they could offer retirees peace of mind by providing fixed monthly income for the rest of their lives (or for a specified period agreed with the annuities lender). Alternatively, flexible drawdowns could provide over-55s with the freedom to choose an income to withdraw from their pension which suits their exact circumstances.
The right option always comes downs to individual circumstances. And this further underlines the benefit of financial advisors who review all the possible options and explain them to consumers in simple, jargon-free terms. Only then can a well-informed decision be made.
Knowledge is power, or so the old cliché goes. This rings true in the world of pensions – panic often stems from a lack of knowledge about your pension and the options available. Speaking with experts and gaining their advice gives consumers knowledge and, in turn, power. This will help fight off pension panic and ultimately ensure the best possible outcome for one’s retirement.
As the UK continues to ease lockdown restrictions, many industries are wondering what to expect in the post-COVID landscape. In China, early signs reference a u-shaped recovery, which predicts a lingering effect in the coming months before trade returns to normal. During this period, some individuals may remain in, or enter, temporary financial difficulty. This is why it is essential that communication between consumers and the financial services sector are effective. Demi Edmunds, Specialist at TextAnywhere, explores this idea further.
Both the government and the Financial Conduct Authority (FCA) have implemented a number of different schemes and measures to support those experiencing financial difficulty due to the pandemic. To highlight just a few - mortgage payment holidays, interest free overdrafts of up to £500 and a freeze on credit card and loan payments have all been introduced in a bid to help consumers financially struggling as a result of the pandemic. These measures have and will continue to be vital in supporting consumers and the economy through this uncertain time. But to be effective, individuals need to be fully informed of the options available to them and this is why a robust communication strategy is crucial. We’ve collated some considerations for post-COVID communications for the financial services sector.
First and foremost, firms need to make consumers aware of what support is available. Although this may seem obvious, as extensions are confirmed and the potential for individuals to be financially impacted continues, this should remain a priority for communication plans moving forward. Firms need to ensure that consumers are communicated to in a clear and transparent manner, with full details of all relevant schemes. This includes any benefits to continuing to make payments as normal such as, not taking a mortgage payment holiday. As FCA interim chief executive, Christopher Woolard said: "where consumers can afford to make payments, it is in their best long-term interest to do so, but for those who need help, it will be there."
First and foremost, firms need to make consumers aware of what support is available.
Firms that remain proactive in communicating updates to consumers are ensuring that their customers are kept fully informed and may be able to reduce the number of incoming queries. This may be particularly valuable for those who are operating with reduced employee numbers.
The coronavirus has caused a lot of uncertainty and during lockdown, many organisations and firms closed physical locations. Selected banks and firms did remain open but with reduced hours and staff to maintain safety protocols. Consequently, even now it is vital to effectively communicate the measures taken to maintain a safe environment for customers and staff. For example, highlighting any additional hygiene procedures.
Moreover, to adhere to new safety guidelines many businesses will require customers to follow new protocols and these must be clearly communicated. Individuals need to be aware of what to expect when visiting their local branch, particularly if they have certain tasks they need to complete in-person. Customers need to feel as comfortable as possible during their visit and communicating details of the above, will go a long way to achieving that.
Though extensions have been confirmed on many schemes, meaning support will be on hand until 31st October 2020, eventually these measures will need to come to an end. Organisations and firms need to start planning now, how are they going to handle these support measures coming to an end, being mindful of the fact that consumers may be more vulnerable than normal. Ensuring that next steps are communicated to individuals with plenty of notice and where possible, with breakdowns on payment figures and schedules, will go some way to helping individuals to financially prepare.
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When communicating with consumers, we would always recommend a multichannel approach. Different audiences within your customer base will likely have different preferences, it’s important to ensure individuals receive and read any important updates. As it was recently reported that 44% more emails are currently being sent than before the lockdown began, it’s worthwhile reviewing which communication channels you are using to ensure your strategy is as effective as possible.
In recent years, SMS has grown to become a very effective communication channel for customers to interact with businesses, with 74% of consumers reporting an improved impression of brands that communicate with them via text messages. What’s more, SMS benefits from an open rate of 95%, and 90% of messages are read within 3 minutes. This means the reach and speed far surpasses that of other communication channels, which can be particularly useful for time sensitive messages – for example, appointment reminders and account balance notifications.
Even before the pandemic, 9 out of 10 consumers surveyed reported that they suffer from stress and anxiety as a direct result of their debt issues. In a continually uncertain post-COVID landscape, individuals are likely to be feeling more vulnerable than usual. Though the regulator has still not confirmed whether additional resources, for example debt counselling, will be available to consumers over the coming months, the FCA have said - “Firms should consider signposting customers towards sources of debt advice… debt advice may be helpful for customers coming to the end of payment holidays”. Thus it is important that this has been prioritised in your communication strategy.
Treating customers fairly will always remain a top priority for those in the financial services sector, and a large part of that is ensuring that you and your team sufficiently understand your customers’ circumstances. Arguably, this is now more important than ever before and with effective communication your company can keep the dialogue open.
On Monday, HM Treasury named Nikhil Rathi, former chief executive of the London Stock Exchange, as the new head of the FCA.
Rathi will take over from interim chief executive Christopher Woolard, who entered the position after the last permanent CEO, Andrew Bailey, who led the regulator for over four years before stepping down in March to become governor of the Bank of England.
Chancellor Rishi Sunak said in a statement on the appointment: “Nikhil is the outstanding candidate for the position of chief executive of the Financial Conduct Authority, and I am delighted that he has agreed to take up the role.
“We have conducted a thorough, worldwide search for this crucial appointment and, through his wide-ranging experiences across financial services, I am confident that Nikhil will bring the ambitious vision and leadership this organisation demands.”
Rathi, who is ethnically British-Asian, will also be the first BAME head of the watchdog. He will be paid £455,000 a year with a 12% pension, though he will not be entitled to bonuses. His term will last for five years.
Commenting on his new appointment, Rathi said: “I am honoured to be appointed chief executive of the Financial Conduct Authority - I look forward to building on the strong legacy of Andrew Bailey and the exceptional leadership of Christopher Woolard and the FCA executive team during the crisis.
“In the years ahead, we will create together an even more diverse organisation, supporting the recovery with a special focus on vulnerable consumers, embracing new technology, playing our part in tackling climate change, enforcing high standards and ensuring the UK is a thought leader in international regulatory discussions.”
The unprecedented series of measures announced by the Chancellor in March were designed to give the UK economy a soft landing from the sheer collateral damage being sown by COVID-19. Some of the most far reaching measures included loans for businesses affected by the pandemic as well as mortgage payment holidays and a near halt on repossession activity, among many others. Whilst these measures were well received by businesses and lenders, it still left many questions unanswered and sometimes raised more questions. Under these circumstances, the FCA has published guidance to reassure businesses and lenders and clarify key issues in the Chancellor’s measures which deserve closer attention. The FCA hopes that the guidance will ‘help firms support consumers’ and reassure both borrowers and lenders that they will receive the support they need. Alexander Edwards, partner at Rosling King LLP, illuminates the pertinent details of the guidance for Finance Monthly.
Central to the Chancellor’s measures are loans to thousands of small businesses across the country, known as the ‘Coronavirus Business Interruption Loan Scheme’. The FCA has made clear that it wants small businesses to be confident that access to the funds promised by the Government will be based on the question of “how their business has performed in the past and its future prospects – not its position today,” acknowledging that applicants for these loans will likely be experiencing exceptional financial pressures when applying for the loan.
This means that lenders must assess the applicants in a new way. Lenders must take into account a range of evidence when approving loans, which will not necessarily be based on the current conditions of a borrower. Such evidence can include historic trading figures and future forecasts.
The FCA has clarified that it is reasonable to expect a borrower’s income to increase in the future and its expenditures to decrease as the effects of the COVID-19 pandemic come to an end. The terms of the loan will also be a relevant factor. Importantly, if the forecasted income does not materialise for any reason then lenders should consider deferring repayments until such time the forecasted income does materialise.
Lenders must take into account a range of evidence when approving loans, which will not necessarily be based on the current conditions of a borrower.
Another central pillar of the Chancellor’s measures is ‘Mortgage Payment Holidays’. The FCA’s guidance makes clear that lenders should be granting borrowers payment holidays for an initial three-month period if they are experiencing payment difficulties as a result of COVID-19. Such payment holidays will also be extended to those borrowers who have suggested that they may potentially experience payment difficulties or indeed to those borrowers who have simply indicated to their lenders that they wish to receive one. Lenders are not expected to investigate the circumstances surrounding a request for a payment holiday.
The FCA has clarified that there should be no fee or charge applied to a borrower’s mortgage account as a result of the payment holiday, except for the additional interest which will be applied. The guidance also makes it clear that lenders may decide to put in place options other than a three-month payment holiday and there is nothing stopping lenders from providing more favourable forms of assistance to the borrower – the FCA suggests that one alternative could be reducing or waiving interest.
Other clarifications by the FCA pertaining to mortgage payment holidays include:
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The final set of core guidance issued by the FCA pertains to repossession. The FCA has made it clear that no responsible lender should be considering repossession as an appropriate measure at this time as it is not going to be in the best interests of the borrower and expects all lenders to stop repossession action. The FCA has also emphasised that this applies to all borrowers, not just those whose income has been affected by COVID-19.
Lenders are advised not to commence or continue with possession proceedings at this time unless it can clearly demonstrate that the borrower has agreed it is in their best interest. Lenders should therefore be reviewing all ongoing possession proceedings and those which it intends to commence carefully to ensure that it could clearly demonstrate to the FCA that the proceedings are in the best interests of the borrower.
The FCA has also made clear that lenders must ensure borrowers are kept fully informed and discuss the impacts of suspending any possession proceedings or any moves to commence possession proceedings.
These are uncertain times and it is clear that lenders should be working with borrowers and taking steps to support them during a time of unprecedented financial pressures. The FCA will review its guidance in the coming months as the situation develops and will issue amended guidance as appropriate. Lenders and businesses alike should play close attention to any newly issued guidance in order to protect their interests and ensure that they are sticking to government’s extraordinary programme.
Fintech is one of the most recognisable terms in the financial services industry but sits aside its lesser-known compatriots, RegTech and InsurTech. Put simply, these terms represent the evolution and revolution of financial services globally, and the UK has firmly embraced the use of such advances. Evolution relates to the giants of the UK financial services industry who have been around for over a hundred years and revolution reflects the large number of start-ups who have not had to adapt old systems to new ideas but have had a clean sheet from which to design a process and solution using the latest technology. Simon Bonney, Partner at Quantuma and member of IR Global, explains to Finance Monthly how fintech has transformed the industry.
The UK fintech industry is worth around £7 billion and employs over 60,0000 people. It now has banks that only communicate with their customers through an online platform and have no physical branches.
The UK thrives as a leading global fintech hub for a number of reasons. As a world leader in the financial services industry, there is an imperative to ensure that we invest in, and utilise, the latest technology to facilitate our competitiveness. As well as a deep homegrown pool, the UK attracts a wealth of entrepreneurial and tech talent because of its status (42% of workers in UK fintech were from overseas in 2018), and also its investment. Investors put more money into UK fintech than any other European country in 2018 ($3.3 billion). In addition, the UK recognises the importance of striking a balance between the promotion of entrepreneurialism and the regulation of new ideas to provide confidence to businesses and consumers the world over through the Financial Conduct Authority (FCA). The FCA’s regulatory sandbox, the framework to allow live testing of new innovations, has become a blueprint for fostering innovation around the world.
The UK Government has recognised that fintech engenders a significant opportunity to create jobs and economic growth and also facilitate the birth of new start-ups in other industries which are able to utilise new technology to make their costs quicker and cheaper. In 2019, 79% of UK adults owned a smartphone and on average they spent over two hours a day on their phones. Access to financial services by smartphones, coupled with a loss of confidence in the traditional financial services industry following the Global Economic Crisis in 2008, has meant that consumers embrace the relative ease and convenience of fintech.
Technology generally has changed the way that consumers expect to engage with financial services and the UK financial services industry has recognised that it cannot operate the same way it did 10 years ago if it hopes to keep pace with the demands of customers. Fintech has changed and will continue to influence the experience and speed of transactions. It has had a significant impact on the cost of operations. For those businesses with legacy systems, there is a huge challenge in ensuring that fintech is embraced and implemented. In order to cope with this challenge, it is likely that banks will seek to further outsource their operations and hand over management of their legacy systems so they can focus on serving customers and finding new routes to market.
Growing opportunities do not come without hurdles. The sheer speed of change in fintech means that regulation is generally trying to catch up, and in a number of instances, such as cryptocurrency, regulators are required to learn about the technology and the way it encourages people to behave before being able to effectively regulate it. However, that regulation will have an impact on development, as the costs of ensuring that new products are compliant will provide a barrier to entry. In addition, fintech is inextricably linked with data and the use and regulation of data will continue to feature in the spotlight.
It is hoped that through the use of fintech bridges, the UK’s best and brightest fintech ideas and businesses will be able to thrive internationally, with automatic recognition by the regulators in those partnering countries. Collaboration has been a feature of the success of fintech, with open source solutions being made available to enable the improvement of all aspects of the industry for the greater good with blockchain being a prominent example. Collaboration on an international level should only provide a more stable platform for that innovation. However, Brexit has raised questions regarding the future of the UK as a behemoth of the financial services industry, and the nature and mobility of fintech and the use of fintech bridges means that competition has been increased across the world.
The UK has been able to remain at the forefront of fintech due to its history in financial services and its depth of talent and investment. Importantly it recognises the importance of remaining at the forefront and will strive to ensure that innovation and regulation continue to go hand in hand.
The COVID-19 pandemic has rendered daily life unrecognisable, and across the globe people are trying to determine how to navigate the strange new world we are living in. At the same time, businesses are having to alter their practices to keep functioning despite the changes that the rapid spread of COVID-19 has caused. The pressure is being felt across all sectors and financial services are no exception.
However, despite the uncertainty of the current environment, regulators still require businesses to comply with certain standards - as made clear in the recent information published by the FCA, which lays out the expectations of the regulator over the coming weeks and months.
With this in mind, there are steps financial services businesses can take to stay on the right side of the FCA during these unprecedented times. Imogen Makin, Director at DWF, outlines the most important ones to consider.
There will undoubtedly be some teething problems for businesses as their workforces get used to the mass remote working required to comply with the current isolation rules. The FCA, and other regulators, know that this situation has never occurred before, and are therefore understanding of any problems or issues encountered in transitioning to this new way of working. However, the key here is just that, that these problems should be identified and reasonable steps taken to rectify them sooner rather than later.
Financial businesses must make it a priority to deal with any problems efficiently and effectively to minimise the risk of criticism from the FCA. Enforcement outcomes over the last few years suggest that firms' response times, both in terms of the identification and rectification of any problems, are important.
Another key issue linked to business being done from home is potential market abuse. Firms’ systems and controls for the prevention and detection of market abuse has been an area of focus for the FCA for some time, and the risks around mass remote working have brought this back to the forefront of the FCA's agenda. The FCA has stated that firms could consider whether they need to introduce enhanced monitoring, for example, in order to mitigate market abuse risks.
It is clear from the FCA Primary Market Bulletin published on 17 March 2020 that the regulator expects firms to continue to comply with their obligations under the Market Abuse Regulation and relevant FCA rules, notwithstanding the operational difficulties they may be facing. Firms therefore need to ensure that their analysis of market abuse risks in this new working environment is clearly documented, alongside any actions taken to mitigate them.
The FCA has stated that firms could consider whether they need to introduce enhanced monitoring [...] in order to mitigate market abuse risks.
Further to the new rules brought in by the government to only travel when it is essential, the FCA published a statement outlining the responsibilities of Senior Managers to determine which employees must continue to travel to work.
Senior Managers responsible for identifying which of their employees need to travel to the office or business continuity site should document clearly the rationale for requiring any work-related travel and ensure that this is kept to a minimum in order to both appease the FCA, and keep their workforce as safe as possible.
The disruption caused by the COVID-19 pandemic is unchartered territory; it has affected education, work, and almost all aspects of everyday life.
With this in mind, it is important for financial services businesses to consider that their customers are likely experiencing many stresses and uncertainties themselves and so regulators, including the FCA, have made it clear that they expect customers to be given flexibility and leniency, for example, in relation to mortgage payments.
Firms will need to ensure that they strike the right balance between protecting consumers' interests, whilst also maintaining their own liquidity and financial resilience, all of which are important in the eyes of the FCA.
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As in all successful relationships, communication is key - and the relationship between firms and regulators is no different. The FCA accepts that businesses are doing all they can to keep functioning during these extraordinary times, but they are nevertheless still required to comply with their Principle 11 obligations.
Firms should make sure they maintain an open dialogue with the FCA and inform them of problems sooner rather than later; for example if a firm is unable to meet FCA requirements in relation to recorded lines, the FCA has stated that it expects to be notified. The FCA's publications in relation to COVID-19 suggest that the regulator is prepared to be forgiving as long as firms have kept them informed and have taken reasonable steps to deal with any challenges that arise.
Firms regulated by the FCA do not need to fear - everyone is getting to grips with the new working environment simultaneously and some initial challenges are inevitable. The FCA has demonstrated that it is willing to be reasonable, but it will not allow COVID-19 to be used as an excuse for bad behaviour. The points outlined above provide a few tips to FS businesses to maintain good relations with the FCA for when the world returns to normal (whenever that may be).
With ten-year fixed-rate deals now at their lowest ever levels, it may be a good time to consider remortgaging. According to Moneyfacts, rates for decade-long fixed-rate mortgages have dropped to a 2.76% average in the past year.
With these recent drops, long-term fixed-rate mortgages may be growing in popularity. With this growing popularity in a period of great uncertainty, people are wondering whether to remortgage or whether to seek alternative financial solutions.
Also, reassuringly in recent times, with the Financial Conduct Authority (FCA) placing strong emphasis on compliance for mortgage and financial advisors with the likes of the Senior Managers and Compliance Regime as a customer, you can be more assured that the advice you receive is more trusted. In previous times, where ‘sales tactics’ may have been deployed more often than not as a primary strategy, rather than explaining the product, things were often confusing for many customers.
In its most basic term, remortgaging is the process by which borrowers switch from their current mortgage deal onto a new one. This is typically done to reduce monthly repayments, or to borrow more money against the property. Typically, mortgage providers will offer attractive initial rates to draw borrowers in. However, these rates will often only last for a few years before the provider puts them onto a Standard Variable Rate (SVR).
By remortgaging, homeowners can borrow more money against the equity of the property. This money is typically used to make home improvements, which can subsequently increase the value of the property. Whilst remortgaging can be a great way to access finance, it does mean paying more back in the long run. Therefore, it’s important that when considering remortgaging you are fully aware of any and all costs that will come along with this.
If your current deal is coming to its end, it may be good to consider a remortgage. There are a whole host of reasons why people decide to remortgage, some of the main ones being those as follows:
People may also be considering to remortgage due to the great deals that are currently on offer throughout the UK, with 10-year fixed-rate mortgages now being an average of 2.76%, with the lowest in the UK being a mere 2.2%. Whilst the long-term, fixed-rate mortgage deals do often some with higher rates than the standard fixed rate deals of two years, these have been discovered to have an average difference of only 0.36%.
With such low rates for long term mortgage deals, now may be a better time than ever for borrowers to remortgage. However, before going through with a remortgage, it’s important to understand all charges that may apply to the switch, such as exit fees and early repayment charges.
With such low rates for long term mortgage deals, now may be a better time than ever for borrowers to remortgage.
Remortgaging can be a great way for people to borrow more money against their property, however it isn’t always the best option for this. For those who are already happy with their current deal, or perhaps have a long while left on their current plan, remortgaging may not be the best move.
Thankfully, there are some alternatives to remortgaging where borrowers can still access finance secured against their homes, one of which being a second charge mortgage.
A second charge mortgage, commonly referred to simply as a second mortgage, is a type of loan homeowners can take out. This loan is secured against the equity people have in their property. Essentially, as the name suggests, it is a second mortgage attached to your property.
These loans typically range from £10,000 to £2.5 million for a period of 3 to 25 years. They can also usually lend higher amounts of money than remortgage providers. Due to their diverse nature in size and length of term, second mortgages can be a great means of finance for numerous different things.
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Second mortgages are usually taken out for a variety of different reasons. People use them to make improvements to their homes, pay for their child’s school fees and more. Another very popular reason for taking out a second mortgage is to help grow a business or commercial venture.
For example, you may have a retail business whose premises need updating. Although a retail design agency will cost the business owner more money, updating the shop may provide a very strong return on investment (ROI) through a better retail experience and better presence at trade shows and exhibitions and so a lender may look positively upon this and be willing to lend against a property.
Second charge mortgages can also be used for debt consolidation. However, this may mean paying more back overall in interest. It can also make losses more severe by converting unsecured loans into secured loans and using your home as collateral. If repayments cannot be made, borrowers could face having their home repossessed.
The FCA, the authority that regulates UK banking and financial services, has this week admitted to accidentally leaking the private data of around 1600 people that complained against the regulator.
In a document on its website, the FCA published names, phone numbers and addresses in response to a freedom of information request in November 2019. No other data like financial information or passport info was included, however. The private data belonged to those who complained against the FCA between January 2018 and July 2019.
The FCA has admitted to the leak and apologised, with the intent to address each person whose data was revealed and apologise to each in writing. It has referred itself to the Information Commissioner’s Office (ICO) and will likely expect a fine for the data breach.
On the back of this news, Andy Barratt, UK MD at international cybersecurity consultancy, Coalfire, told Finance Monthly: “The question on a lot of people’s minds will be how does the ICO respond to a data breach at a fellow regulator.
“Together, the ICO and FCA enforce some of the largest monetary penalties for data breaches and there could be cries of foul-play if one’s punishment of the other appears to be a light touch.
“While many will see this as embarrassing for the FCA, it now has a real opportunity to go through the same pain as those it regulates and learn from it.
“Human error is, to an extent, unavoidable and it will be interesting to see whether the FCA better empathises with those it polices in future.”
More and more consumers value the convenience of online banking and payment platforms, which are now used by over two-thirds of British adults – with 48% using mobile banking. However, this has caused fraud to skyrocket – in 2019 one in five UK adults were impacted by online card fraud – calling for financial services institutions to seriously re-evaluate current identity verification methods.
Jason Tooley, Chief Revenue Officer at Veridium, highlights that the huge growth in digital services means a re-definition of strong authentication is crucial. This should focus on mobile possession, multi-modal biometrics, combined with innovation including behavioural and location intelligence.
Jason Tooley comments: “A failure to implement Strong Customer Authentication demonstrates a disregard for consumer protection. The ever-rising fraud levels are linked to the consumer preference of mobile e-commerce, and regulation must keep pace. Now that businesses have had an extended period of six months, in addition to the two years since the initial announcement, there is no excuse to not be compliant. Strong Customer Authentication should have been prioritised long ago and viewed as a business differentiator.”
Jason continues: “Whilst it is true that consumers will see minor changes to their day-to-day user experience, the additional layer of security on payments will enable consumers to benefit from safer and more innovative electronic payment services. Strong Customer Authentication will mean consumers are more confident when making payments – not act as an inhibitor as some have incorrectly suggested.”
Jason continues: “This regulation has meant financial institutions are now under pressure to implement the latest identity verification technologies to protect the abundance of sensitive customer data, whilst delivering a seamless user experience. In our increasingly digitalised world, and with the explosion in cybercrime, identity theft and fraud, online payments must look to set a standard that meets the expectations of the consumer.”
Jason concludes: “If banks are to meet the deadline in one month’s time, they should be turning to technologies in the market which have the potential to alleviate the challenges posed by the regulation. Multi factor authentication solutions can facilitate financial services institutions to enhance consumer confidence and create a secure experience, whilst ensuring the customer has a frictionless user journey. Basing the digital authentication process on combining the customer’s own technology with an open biometric approach and true step-up intelligence, will allow financial institutions to meet the regulatory requirements before it’s too late.”
Below Simon Kenny, CEO of Hoptroff, explains that traceable time is not something you can just install and forget, but must be carefully integrated so that it maintains fully traceable time across all the servers the regulations require.
We have learnt that the challenge is not so much about installing traceable time, but more about adapting traceable time so it works within an existing infrastructure without interfering with performance. Many variations on solutions have therefore been installed, often based on different interpretations of what the regulators require. So the solution adopted by one enterprise might not work at all for another or even offer useful precedents on how to solve the problem.
The FCA is seeing the results of this fragmented development process. It has noted in its bulletins that it is finding that many companies have timing irregularities in their data records. However, it has not moved aggressively to generally enforce the timing regulations, preferring instead to give companies more time to find a compliance solution that works with their existing systems. But this position can only be sustained for so long.
Traceable timing was introduced because data records on automated transactions were unreliable and could not be used to reconstruct transactions after the event accurately. If market participants are to be able to trust reported outcomes from automated systems and have confidence in the market, then sequence and interval in event records need to be verified.
Traceable timing was introduced because data records on automated transactions were unreliable and could not be used to reconstruct transactions after the event accurately.
There might not be a simple solution everyone can acquire and install 'off the shelf', but traceable timing compliance is getting easier. Network connectivity providers such as BT are beginning to offer traceable time as a network service, where companies do not need to buy and integrate additional hardware.
Traceable time synchronization is done in software, using connections to cloud grandmaster clocks to provide trusted time sources. As this method gains adoption, the FCA will be less patient with bespoke timing solutions that do not produce the reliable records they need to regulate market practices.
This work being done by financial services will potentially become important in other industries that use widely distributed automated systems to conduct trading. The Information Commissioners Office (ICO) in the UK is currently conducting a review of the Real Time Buying (RTB) process in the digital advertising industry. This is the process through which a personally targeted advertisement is marketed, sold and provisioned in the interval between when you click on a particular website page and the advertisement actually appearing. It takes milliseconds, but can involve hundreds of third parties, all of whom get access to the personal information of the user as part of the process. However, under the terms of the General Data Protection Act (GDPR), that information is supposed to be under the control of the publisher, who has the permission to use it, not multiple unidentified third parties who don’t have direct permission. If the ICO wants to track this “data leakage,” so it can protect personal data then the work done by the financial services industry to create traceable records using synchronized time could be invaluable.
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Similarly, the online gambling industry uses fast, automated systems to offer and adjust betting odds on different outcomes in sporting events. In this process the precise sequence and intervals between events are important; if a user bets 'in-play' during a football match that a penalty will be given, and at that precise moment of making the bet a foul is committed which is then given as a penalty, the timing of events, and how they are recorded, will determine whether the bet is accepted. Did the bet happen in time? What mattered? When did the user pressed send, or when did the bet hit the platform server? The UK gambling commission is regularly being asked to look at disputes when gambling companies reject bets that would have won had they been accepted. If all the parties in the chain had traceable time to confirm the sequence and interval between events, disputes could be settled more quickly and much more cost effectively.
There are no traceable timing requirements in the digital advertising market, or in online gambling at present, but both have a need for traceable data records to underpin market confidence in non-transparent automated systems. The regulators will likely move cautiously on introducing a regulation like traceable timing. Like the FCA, they want to make sure that the potential market disruption this might cause is justified by the market efficiency benefits to be gained. But the faster the systems become, the wider they are deployed and the smarter the applications get, the greater the need for verified transactions records. Financial services are leading the way on developing ways to help keep automated systems accountable. Other industries will reap the benefits, because when additional regulators unveil a requirement for traceable timing, the systems developed for financial services will be available, almost 'off the shelf', to these other industries, which make automation more accountable but ultimately boost market confidence.
This news comes after a string of regulatory changes in the consumer finance industry introduced by the Financial Conduct Authority, who took over from the Office of Fair Trading in 2014.
Peer-to-peer lending involves lenders acting as ‘middlemen’ between people looking for short term loans and investors looking to earn a return on an investment – often with returns as high as 12% or 15% depending on the amount of risk that they take on.
The peer-to-peer lending industry is estimated to be worth £2 billion in the UK, but has seen the casualty of some big names go into administration in recent years too.
The existing peer to peer lenders will form a separate industry body, replacing the existing regulator that was in force since 2011. The new group will be part of a wider fintech group that will represent companies in their industry.
Following the news that the existing P2P trade body is to be replaced, Innovate Finance said that this was because the P2PFA had ‘achieved its objective of providing adequate protections for consumers.’
It also follows the recent news of additional peer-to-peer lending criteria being implemented in December 2019.
The new group of lenders are the leading members of the 36H Group, as well as a part of Innovate Finance. They have approximately 250 members in total, and also represent other fintech firms such as Dozens, Moneyfarm and Atom Bank.
The regulations for the peer to peer section created by the Financial Conduct Authority (FCA) mean that casual investors are now banned from being able to put any more than 10 percent of their assets into the sector.
The new FCA regulations also require peer-to-peer lending platforms to thoroughly assess the level of knowledge and expertise of investors before they make a P2P investment.
Some argue that this could potentially pose problems for lending platforms, who may decide to close completely if they will be losing huge investment.
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Peer to peer lenders receive money from investors and then distribute the cash to borrowers in exchange for a return on their investment.
The lender acts as broker or middleman between a high street borrower and an investor and returns range from 5% to 15% per annum, depending on the level of risk. For those looking to invest in good credit customers, the return is often lower because the chance of repayment is high. If you invest with bad credit customers, the risks of default are potentially higher, but the rewards may deliver a return of up to 15% per annum.
In terms of regulation, the peer-to-peer lending platforms are monitored by the Financial Conduct Authority, but they are not a part of the Financial Services Compensation Scheme.
This means that if a borrower defaults on payment (and this is expected of at least 20% of customers), investors are not necessarily compensated.
Most lending platforms will have their own compensation scheme in place including procedures, separate funds and a customer services team to collect on bad debt.
Below Finance Monthly hears from Steve Moss, Founder and CEO at P2P lending specialists Sourced Capital, on the ins and outs of the FCA regulations, the overall plans behind the new rules and what investors can expect when applying for financing.
These stricter onboarding measures now require potential investors to answer a number of questions focused around investment, to ensure they possess the required knowledge to make educated decisions when investing, thus improving the sector for investors from a quality control standpoint and ensuring they receive a greater level of security and protection, a positive for P2P lending industry as a whole.
At our firm we place investor welfare at the heart of their business model and see these regulatory changes as the first step towards a more transparent, investor-friendly sector. We've recently invested in a new platform that provides a simpler and easier user experience for customers in anticipation of these industry changes, so that while standards progress, the ease at which someone can invest remains the same.
The platform means that customers can transfer their ISAs online and use it to invest in property instantly with e-wallet control on their integrated dashboard. Investors can also invest with their SIPP or SSAS pension, or regularly with cash. The company also uses regtech processes such as an anti-money laundering check (AMC) and know your customer (KYC) identification checks. The AMC and KYC checks are in place to verify the identity of individuals carrying out financial transactions and screen them against global watchlists.
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But while Sourced Capital has worked hard to keep the process as straight forward as possible, these latest changes have still left some investors a little deterred, so what should you expect when tackling these newly introduced questions?
The areas covered to ensure investor knowledge are quite robust and include but are not limited to topics such as: -
While this may sound daunting, the process is designed to really boost the level of investor knowledge and this will be gauged through questions such as:
❌ Do no Due Diligence at all as Lenders Will Do Their Own Research
✅ Sourced Capital Carries out Due Diligence Internally and Remotely. Though Lenders Are Advised to Carry Out Their Own Research on Every Investment They Make.
❌ Put all my money into Peer to Peer Lending
✅ Build a diversified investment portfolio covering many different investment classes after seeking independent financial advice
❌ I Will Continue to Always Receive Great Returns, My Capital is Not at Risk.
✅ Past Performance of Investments is Not an Indication of Future Performance. Each Investment I Make Should be Considered Individually
These stricter onboarding measures now require potential investors to answer a number of questions focused around investment, to ensure they possess the required knowledge to make educated decisions when investing, thus improving the sector for investors from a quality control standpoint and ensuring they receive a greater level of security and protection.
The Peer 2 Peer sector has received some stick over the years and as you’ll find with all business areas, there are certain less scrupulous types that sometimes drive this, whilst some of us have been working hard to raise the bar. These latest regulatory changes by the FCA are a positive step in the right direction in terms of improving standards and investor welfare across the board, and the extensive knowledge now required will ensure that investors are far more educated than previously and not only does this help them in terms of the decisions they will make, but it helps improve the quality of the sector as a whole.
Of course, there is always more that can be done and until this is introduced at the top level, it’s the responsibility of us as sector professionals to drive positive change. For example, all our investors get a first charge against the property invested in, which gives a greater level of protection and lowers risk but is something that not all platforms do.
We always recommend that investors only opt for FCA approved companies which again reduces risk, while we also only loan at maximum loan to value of 70%. We also offer all investors the chance to view a project and to learn directly from us which again, is something that other platforms don’t offer, but for us, it provides greater transparency and trust while helping improve knowledge on a particular investment.
