Financial Guidance and Claims Bill: Time to be clear what ‘guidance’ means.

The Financial Guidance and Claims Bill is now nearing the end of its journey through Parliament. It will merge existing financial guidance services – the Money Advice Service, Pension Wise and The Pensions Advisory Service – into a Single Financial Guidance Body.

The new service will give people a ‘one stop shop’ for unbiased help with personal finance matters, big or small. This is needed more than ever, as financial products become more complicated, and people take on more responsibility for managing their own financial wellbeing.

In December 2016, the government said the new entity would be “a place people can go for free, impartial financial guidance”. But the new body will only be effective if people can be confident that they really are getting impartial financial guidance. So it is vital to clarify what constitutes impartial guidance and, just as importantly, what does not.

The financial services industry does not provide impartial guidance: a commercial comparison website that takes commission from listed providers is different from a factual comparison table presented by an independent, impartial body that shows rankings based on objective criteria. Likewise, guidance on types of investment is different when it is intended to lead to a product sale from that offered by an independent organisation. Where the guidance is delivered by an organisation that stands to benefit commercially from it, there is an inherent conflict of interest.

It is important that people can be confident that someone offering them guidance is on their side and not employed to sell them something. This is clear in most markets: walk into a shop and the person behind the counter will be called a ‘sales assistant’, or similar. Go to look at new cars and you will talk to a ‘sales adviser’.

On the other hand, at your local bank branch you’ll probably talk to a ‘customer service adviser’ or a ‘relationship manager’. One of the many reasons that consumers don’t trust the industry is that ‘they are always trying to sell you something’. In one sense, the coy job titles don’t fool anyone. The problem is that if the customer service adviser is offering something called ‘guidance’, this muddies the waters.

Over a decade ago, the then regulator, the FSA, castigated firms for ‘misleading approaches’, saying “we identified a number of examples where the job title of the individual, or the approach being made by the firm, may have given the customer the wrong impression over the reason for the firm’s contact with them. In these situations, the customer may not have realised the firm was making a sales approach”. We hope this point isn’t lost on the FCA.

Parliament cannot mandate job titles. But it could use the Financial Guidance and Claims Bill to clarify in law that information and guidance intended to result in a product sale, however indirectly, should be called ‘sales guidance’. Otherwise firms will be able to continue to ‘dress up’ product sales as guidance, and trust in genuinely impartial guidance will be undermined.

Open Banking: what does it mean for consumers?

What is Open Banking?

From Saturday 13 January, Open Banking will allow consumers who ‘opt-in’ to share their current account data with other organisations, electronically and securely. It also offers new ways to pay for things without having to use a credit or debit card.

Why would people use Open Banking services?

Choosing to give a third party provider (TPP in the jargon) access to your account data means they can offer more convenient, personalised services. For instance, when someone takes out a mortgage, sharing their account data could avoid having to print bank statements to send to the provider to prove income and outgoings. Sharing data could make the experience of taking out existing products quicker and easier.

New services like account ‘aggregators’ or personal financial management apps bring an individual’s accounts together in one place so that they can more easily keep track of their finances. These apps offer new insights about spending patterns and where savings could be made, potentially helping people manage their finances more effectively.

At the moment, the only way for an individual to get access to these services is to give out their login details. Open Banking will mean an end to taking this risk.

Providers using Open Banking technology might shop around on the consumer’s behalf, alert them to special offers coming to an end, make recommendations for new products tailored to their spending patterns and, with the consumer’s permission, switch products. This is not just for individuals, small businesses stand to benefit, too.

What’s the downside?

Consumers will need to decide whether to share their account data if asked by a TPP to do so. They will need to know how new products work; how companies intend to use and store their data; and whether they will sell it on or share it with other parties.

Open Banking could result in people signing up for products and services they don’t understand and find their data has been shared or used in ways they didn’t expect.

It is possible to infer a lot from an individual’s account data about that individual’s lifestyle, preferences and interests. This puts more power in the hands of companies and makes consumers vulnerable to scams, mis-selling and unethical practices.

Is it safe?

As safe as it can be. Consumers can choose to use Open Banking services or not, and always have to give explicit consent to the TPP accessing their banking data.

If, as a result of using a service, there is an unauthorised payment from a customer’s account, then their bank is duty bound to reimburse the funds straight away, even if it was the fault of the TPP. If an individual isn’t happy about how their complaint has been dealt with, they can take it to the Financial Ombudsman Service.

Consumer data protection rights will be strengthened when the new General Data Protection Regulation (GDPR) comes into force in May 2018. Organisations will only be able to access account data with the consumer’s explicit consent and should only take the data they need to deliver the service the consumer has signed up for. Breaches of this regulation will be subject to heavy fines.

The Consumer Panel is committed to championing consumers’ interest as the Open Banking market develops. We’re currently doing research with the London School of Economics to find out more about how people give their consent to share their personal data. From this we’ll be making recommendations to the FCA about how to reduce consumer vulnerability in the new market and ensure consumers can reap the benefits of Open Banking.




Mind the (data consent) gap: are consumers prepared for the ‘Open Banking’ revolution’?

Open Banking means that the UK’s nine largest current account providers will have to open up their customers’ account information to third parties. A new EU Directive (the Payments Services Directive II) will cover customer data for all online payments accounts. This new regime is just two months away.

This unprecedented access to data should create more opportunities for new, innovative services. The new players – the third party providers in the jargon – will be able to use information about payments into, and out of, people’s bank accounts to offer services that could help them better understand their spending patterns, find financial products that better suit their needs or provide them with different ways of making payments. To do this, third parties will need to obtain consumers’ consent.

Two million people in the UK already give third parties access to their financial data. They do this by giving away their passwords and other credentials, to allow third parties to ‘screen scrape’ their data. This is a risky business. Open Banking will be more secure.

The General Data and Protection Regulation (which also comes into force next year) should help consumers to control and harness their data. People will have the right to demand a business extracts all the data held on them in a format that will enable them to use it with another provider. They will also have the right to remove their data at any time – the ‘right to be forgotten’. There will be hefty penalties for firms that breach the Regulation – a sharp incentive to safeguard personal data.

The new services offered by ‘Open Banking’ will rely on people giving permission to use their data. The Panel wants to understand how well consumers are prepared for this. Will they be able to share their data in an informed way? Will they be able to get the benefits of data sharing without being subject to manipulation or ‘hard sell’? Do they understand the trade-off between more convenient and personalised services and possible loss of data privacy and control?

To answer these questions, we have commissioned research into data consent and use. We want to use the experience of people already using third party providers to make Open Banking better for all consumers when it goes live next year.




Pensions Dashboard: a golden opportunity to connect people with their pensions?

The pensions dashboard will let people see all their pension savings and entitlements in one place. People will be able to keep track of auto-enrolled savings as they move jobs, as well as personal pensions and the state pension. This will help people plan better for the retirement they want. But only if it is done in the right way.

The Pensions Dashboard project team has argued that for the dashboard to work for people it must be comprehensive, effectively regulated and underpinned by strong independent governance to ensure pension savers are given the same information wherever they look[1]. We agree.

But it needs to be more than this. Looking at how well people are doing from pension freedoms, the FCA found that people didn’t trust pensions or the industry[2]. This meant they were disengaged, reluctant to take advice, and took decisions about their pension savings that probably weren’t in their best long term interests. In research for the dashboard project, consumers said they wanted and expected the dashboard to be government led. So we welcome the government’s recent commitment to leading the next phase of development.

However, the government seems to favour a model where any pension provider can produce a dashboard for its customers. This sounds fine in theory, so long as all providers are compelled to take part (far from a done deal), and the information is standard. But it ignores the all-important question of trust. As the Minister for Pensions said recently, the aim of the dashboard should be to maximise people’s engagement in pensions while maintaining their trust.

This won’t happen if the dashboard is only provided by the industry. There is a fine line between providing information and pushing products. Consumers know where that line is, and they dislike being ‘sold to’. A dashboard with heavy branding or irritating pop-up ads would rapidly put people off using it.

It is vital, then, that people can have access to a dashboard that is impartial and sales-free. We think the new Single Financial Guidance Body is the obvious place for this. Subject to parliamentary approval, the SFGB should be up and running in a year’s time. It will be the home for all pensions guidance, including Pension Wise. People rate highly the pensions guidance they get from government sources. They also trust it.

The dashboard is a great opportunity to get people interested in their pension savings. It should not be wasted by commercial interests driving out a solution that people will trust and use.

[1] Pensions Dashboard Project: Reconnecting people with their pensions. 12 October 2017


A missed opportunity: FCA misses opportunity to protect credit card customers from high prices and debt problems

Almost daily the Bank of England issues new warnings about consumer credit. Its latest publication reports that default rates on unsecured lending have increased significantly and are still rising. The Bank’s job is stability of course – it says banks are storing up trouble by lending more and not worrying too much about whether people can afford to repay. At the other end of the telescope, consumers are doing their best to shore up economic growth, against a background of falling wages, rising prices and Brexit-fuelled uncertainty. This means borrowing. Lots of it. In the twelve months to April 2017 consumer credit grew by 10.3%, markedly faster than nominal household income growth . It also means a lot of human misery. The debt advice charity StepChange reported that there was a record demand for its advice last year, with nearly 600,000 people contacting them for help – or one person every 53 seconds .

It is not for the Panel to say how we should get out of this mess. Our job is to advise the FCA on the consumer interest. The FCA acted swiftly and decisively to stamp out poor practice in the payday lending market. By contrast, it is taking a long time to do very little about credit cards. Over two years since it first looked at this market, the regulator is still meandering through the issues piecemeal.
The latest effort is a consultation on persistent debt and earlier intervention. People in persistent debt are very profitable. According to the FCA’s definition, they are paying more in interest and charges than capital repayment over 18 months. For the 4 million accounts in persistent debt, the average is £2.50 in costs and charges for every £1 repaid. Having price-capped payday loans “to protect consumers from excessive charges” the FCA is silent on whether the levels of costs and charges paid by those in persistent debt are excessive.
The FCA’s remedies are too little, too late. After 18 months, lenders will have to nudge people to let them know they could pay down their debt faster if they increased their repayments. There will also be a threat to suspend the use of the card after three years of persistent debt. Two questions: Why wait 18 months to take the first steps to prevent detriment? And if the aim is to get people to pay credit card debt faster, why not simply
increase minimum repayments?

We want the FCA to undertake a proper assessment of different approaches to tackle the very real customer harm caused by credit card debt. This should include testing a range of time periods for taking action, as well taking account of the wider costs of over-indebtedness.

None of this reaches the heart of the issue, which is that credit card firms continue to offer inappropriate products to customers, with unaffordable credit limits, featuring fees and charges that are not always transparent and proportionate. For 0% balance transfer offers (in effect not 0% because there is a usually a fee) firms rely on consumers breaching the terms and conditions, or being unable to repay at the end of the 0% period, to generate their profits. So certain are they, that many firms ‘book’ the profits from 0% cards years before they materialise. This is not ‘treating customers fairly’, but the FCA stands by and does nothing to prevent firms exploiting consumers behavioural biases. The regulator has also fudged credit limit increases by agreeing to a voluntary industry agreement. Firms should not increase limits unless the customer explicitly requests it. Why is it so hard for the industry to agree to that?

The FCA’s own analysis shows that 51% of borrowers in persistent debt have two or more cards. Yet the FCA’s consultation paper barely mentions customers who have more than one credit card, and the remedies do not take account of multiple credit card debt. This is a serious omission. StepChange reports that a quarter of its clients have three or more cards and their average credit card debt is nearly £20,000. Levels of debt rise significantly the more cards people have.
In its Mission the FCA says: “the preferred approach is typically preventative – to stop bad things from happening in the future” . The FCA’s proposals are wide of that mark. We wanted the FCA to take more decisive action. Moving regulation of consumer credit to the FCA provided a real opportunity to tackle consumer detriment across the entire consumer credit market where ‘mainstream’ credit products, including credit cards, are a major cause of over-indebtedness. The FCA has failed to grasp this opportunity.
The Panel would like to see:
• A meaningful increase in minimum repayment levels to ensure credit card debt is repaid faster. As firms acknowledge, credit cards are not intended as a longer-term borrowing vehicle;
• A requirement on lenders to develop systems to identify their financially fragile clients;
• Proper assessments of affordability, taking into account all forms of debt;
• The FCA to mandate that all firms report new lending commitments to credit reference agencies (CRAs) serving the UK market and share real-time data;
• The FCA to ban all unsolicited credit limit increases; and
• The FCA consult on whether there should be a ceiling for overall levels of unsecured borrowing by an individual, based on affordability.

The Panel’s response is available here.

Financial Advice: What’s in a name?

The Treasury consulted recently on ‘stripping back’ the legal definition of financial advice to that contained in the Markets in Financial Instruments Directive (MiFID)[1]. This was intended to give firms greater clarity about what is regulated advice and what isn’t, and, at a stroke, solve the ‘advice gap’. The problem the government is trying to solve is that people won’t pay for expensive financial advice when they can’t see the value of it, or can’t afford it.

The problem with the proposal is that it is not a solution to the ‘advice gap’ at all.

On the face of it, a simpler definition sounds attractive. But all the change would do is move the demand for clarity from “what is regulated advice and what isn’t?” to “what is and is not a personal recommendation?”, at the same time providing encouragement to unregulated firms to enter the market.

It is worth saying that not all firms have problems understanding whether their advice is regulated or not. Financial advisers may be supporting the change, but they already have a duty to act in their clients’ interest, so make sure they understand the rules. Changing the definition will have little, or no, impact on them.

The less capable appear to be mainly product providers and banks. As we can assume they are not all stupid, what is their motivation for ‘not understanding’ the rules? It seems likely some firms want to get back into selling regulated products to their customers, but without the inconvenience and liability of operating within the regulatory regime for advice. The proposed change is quite subtle, so bear with me. At the moment, regulated advice can be general (“This is a great investment product”) or with a personal recommendation (“This is a great investment product and it is suitable for you”). The first type would no longer be regulated under the government’s proposed change. What that means is that firms could ‘nudge’ people towards particular products, leaving the consumer to make their own decision (a ‘non-advised’ or ‘guided’ sale in the jargon). Regulated firms are still likely to have to abide by general FCA rules of business, but not the more stringent advice rules, including ensuring advisers had the requisite levels of qualification. Getting redress could be tougher, although not impossible.

Unregulated firms would be likely to enter the market in droves, potentially pushing high-risk products, and passing the consumer to a regulated firm for the product sale. Online, this consumer journey would appear seamless. Financial promotion rules would still apply, but there are a number of exemptions firms could exploit. There would be limited recourse for consumers through the Ombudsman service and limited regulatory oversight.

This is bad news for people wanting to exercise their pensions freedoms. Pension scams are on the increase: they almost doubled to £10.6m in the six months following pension freedoms, compared to the same period the year before[2]. It is impossible for people to tell the difference between an outright scam and an ill-advised investment. Why make their lives harder?

Language is a problem here too. We know people don’t understand the difference between (regulated) advice and guidance, and why should they? The proposal that anything that isn’t a personal recommendation should be called ‘guidance’ is perhaps the worst idea in the consultation. There is a world of difference between an impartial guide helping someone to make a decision – as Pension Wise does, for example – and a product push dressed up as help. Every other retail business calls someone who wants to sell a product a ‘sales adviser’, and the activity ‘selling’. The financial services industry should follow suit.

To conclude, the Consumer Panel would like nothing better than for people to get the help they need[3]. The new public advice body – a marriage of Pension Wise, the Pensions Advisory Service and the Money Advice Service – is a golden opportunity to get it right. The government should focus on that, rather than changing the law to no obvious consumer benefit.




[1] HM Treasury consultation: Amending the definition of financial advice, September 2016:

[2] FTAdviser article: Pension freedoms fraud revised higher, October 2016:

[3] The Financial Services Consumer Panel’s full response to HM Treasury’s consultation can be found here:

Banks should measure how culture change affects their customers

There is general agreement that much has gone wrong with banking culture over many years, generating the behaviours that led to:

  • The banking crisis in 2008;
  • Mis-selling scandals including PPI, investment products, packaged bank accounts and interest rate hedging products; and
  • Rate-rigging in relation to both LIBOR and foreign exchange.

Bank CEOs have acknowledged publicly the need for banking culture to change and for customers to be put at the heart of a bank’s business.

The Consumer Panel wanted to explore how much customers were aware of their banks’ cultural failings. We commissioned research by the Personal Finance Research Centre at Bristol University to find out how individual bank customers and micro-enterprises defined a good banking culture, and whether they thought banks had delivered on their promise to change.

We found that bank staff are less and less accessible, and don’t have the flexibility to personalise their service. For much of the time this doesn’t matter, but as soon as a customer has a problem these are real issues. Unless the problem “fits” the bank’s script, bank staff members can’t help, and the onus falls on the customer to try to sort it out themselves.

Our research also found that bank customers feel their needs come a distant second to making a profit. Micro-enterprise customers felt this most keenly, with many saying they were receiving a more and more impersonal service, leaving them feeling that their custom is not valued. In view of the crucial importance of small businesses to the UK economy, this is something that should concern us all.

Most customers said they believed that their banks were far more interested in attracting new customers than looking after existing ones. We have long been concerned about the treatment of long-standing customers; the FCA’s “treating customers fairly” principle simply doesn’t go far enough to ensure banks put their customers’ interests first.  Lip service to this principle means customers enduring unfair treatment at the hands of their financial services provider. We are calling again for a change in the law, to provide for a duty of care to be owed by all financial institutions to their customers. This would mean front line staff stopping and thinking about whether they were putting the customer’s interest first, in much the same way as a doctor or solicitor must. It would go a long way to ensuring fairer treatment for consumers of financial services.

Our research includes a series of metrics, suggested by consumers, which could be used to measure the extent to which bank culture is improving in the interests of their customers. We would like to see the Banking Standards Board encourage banks to adopt such metrics as an objective measure of how their culture is improving in the interests of their customers. Banks may think the standard measures they use, such as Net Promoter Scores, give them an insight into their customers’ needs. They do not: loyalty is not the same thing as well-served. As we found out, many customers feel trapped in poor relationships.  Banks now need to look for themselves at how their culture manifests itself to their customers.