There are 7.4 million adults in the UK who are over-indebted and find their financial commitment a burden, according to a new FCA report.

The regulator published its annual Sector Views, an assessment of the risks and potential harm to consumers across financial services markets.

The report considered the impact of macroeconomic developments and common drivers of change emerging across financial markets, and outlined areas where there may be a negative impact on consumers or the integrity of the financial system in that sector.

“We are committed to reducing harm in the markets we regulate,” commented the FCA’s executive director of strategy and competition and interim chief executive designate, Christopher Woolard.

“Our analysis of markets ensures that we do this effectively, helping us to decide where to focus our attention. We expect firms to be similarly focused on preventing harm and assisting us where they can, and we will continue to actively supervise all firms to ensure they achieve this.

“What is clearly apparent from the Sector Views, is that many of the harms we are seeing are created by a significant number of smaller firms we regulate or firms beyond our remit.”

The FCA report set out several factors driving harm and considered how any harm could develop over time. Alongside the FCA's Financial Lives data which showed there are millions of over-indebted adults in the UK, the regulator also found that pricing practices in insurance are still penalising loyal customers.

The ‘loyalty penalty’ in home and motor insurance cost six million longstanding consumers an extra £1.2bn in 2018, and the FCA said it is finalising solutions following its latest market study.

Stephen Lowe, group communications director at Just Group, commented: “The FCA points out that switching could often significantly increase retirement income, so stubbornly low levels go to the heart of whether customers have the information or inclination to find the best deals in a very complex market.

“Those who don’t receive professional help are more likely to end up in higher cost plans, according to the FCA, which found only 29% of non-advised drawdown customers pay below the 0.75% workplace pension charge cap, with a clear clustering around 1%.”

Another potential harm outlined in the FCA’s Sector Views revolved around high-risk retail investment products, which the regulator suggested are exposing consumers to more risk than they can absorb.

The FCA indicated some of the highest risk products are often marketed directly to retail consumers with poor communication of the risks involved and false implications that the investments are regulated.

Nutmeg chief investment officer, James McManus, added: “With retail investors looking at new types of investments and means for generating returns, it is right that the FCA is looking at the potential harm of these, and other high-risk investments, given the increasing difficulty investors face when comparing the risk of investments.

“There are issues of volatility, transparency, fraud, liquidity, diversification and poor communication. Not to mention that some markets have no protection in place at all for consumers. If we’re going to overcome the investing inertia that is so prominent in the UK, more must be done to ensure the appropriateness of products being marketed to retail investors.”

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