Financial Conduct Authority (FCA) CEO Nikhil Rathi has blamed the “caution” of firms for not providing “good and affordable” financial advice to enough customers.
He also highlighted that there needs to be a debate over the impact that artificial intelligence (AI) can have on pooled risk and insurance pricing – potentially leaving the most vulnerable exposed.
Speaking at a Scottish Financial Enterprise event today in Glasgow, Rathi spoke about financial inclusion, seemingly singling out advisers and other firms for not being willing to advise more people.
“At present, not enough customers are getting good and affordable financial advice due to caution on the part of firms,” he said.
“We want to shake this up and are conducting a review on the boundary between guidance and advice.”
On AI in insurance and the historic basis of the pooling of risk to protection populations, he added: “We need to debate the impact of the analytics of huge data sets that AI allows.
“For example, are we happy to move to more accurate individualised insurance pricing. Cheaper for the majority, but more expensive, perhaps prohibitively so, for the higher risk as the pool gets smaller.”
And Rathi noted that with cost-of-living pressures, one in eight UK adults cancelled or downgraded at least one insurance policy in the six months to January 2023.
Pulling levers
More widely, Rathi argued the FCA was pulling every lever it can to expand financial inclusion, but that it needs to work with governments, industry and consumers to make a significant impact.
“Our cross-cutting interventions all aim to protect consumers from harm, boost competitiveness and provide solutions to financial inclusion,” he said.
“We recognise we have a wide remit and a range of powers, but we do not have all the levers – some of them sit with governments in Westminster and in the devolved nations. Others sit with industry and consumers themselves.
“But if we pull these levers in the same direction, together, we can make a significant impact.”
He said there was a significant opportunity for technology to drive solutions to financial inclusion, including access to insurance.
“Together, we need a new Enlightenment that can spark a solution to financial inclusion,” he said.
Rathi maintained government’s definition of financial inclusion is that ”individuals, regardless of their background or income, have access to useful and affordable financial products and services.”
“Financial inclusion matters to the FCA, deeply,” he said.
“If you are outside the financial system or cannot access credit or insurance, you’ll find it harder to get back on your feet when things go wrong.
“Those sudden expenses of a car or appliance failing, of a burglary or accident, can blow people off course and even out of work.”
The role of technology
Rathi also spoke on the importance of digital identity in increasing financial inclusion.
“Digital identity could play a role in addressing the issue of the unbanked as well as access to other financial services,” he said.
“There is a significant opportunity for technology to drive the solutions to financial inclusion,” he said.
The impact of technology via e-money institutions has already been seen. He noted that there has been a five-fold increase in the use of current accounts from e-money institutions since 2017 – from 700,000 to 3.5 million last year.
“At present, not enough customers are getting good and affordable financial advice due to caution on the part of firms,” he said.
“We want to shake this up and are conducting a review on the boundary between guidance and advice.”
Consumer duty
Rathi also touched on the role of the Consumer Duty and how it could help to promote financial inclusiveness.
“Under the Consumer Duty – a sweeping reform we introduced in July – firms who reject customers have to explain alternatives and provide access to appropriate products,” he said.
“We do not want to see a reduction in products or services that are in the interests of customers, or reduced access to them .
“If firms are considering withdrawing a product or service, our guidance says that they should consider the impact on the customers affected, in particular those with characteristics of vulnerability.”