At the ABI “Transforming long-term savings” conference on 19 April, Andy Masters will take part in a panel discussion on “Regulation and competition – is a new dawn in sight?” Here he gives a sneak preview of the discussions, describing the risks and competition facing the industry.
If ever you want an instant solution for sifting the optimists in the industry from the pessimists, ask them about what’s next in regulation and competition. It’s as effective a Sorting Hat as you will find (outside Hogwarts, at least).
These are interesting times in life and pensions. At the Financial Conduct Authority (FCA), you have a new CEO coming in, new competition powers, and a new business plan due to be published in the next few weeks.
Concurrently, there is the Financial Advice Market Review (FAMR) to digest, and the Budget. All big tasks for an industry that is still in the process of plotting its future post-pension freedoms.
Whether your stance on these issues is optimistic or pessimistic, they will require strategic and tactical adjustments from the industry. Both providers and regulators will be taking a good hard look at the market post-FAMR, post-Budget and post-freedoms, and deciding the best course of action for consumers and their own organisation.
In this landscape, what are the main regulatory risks facing the industry? To an extent, they are the same as they’ve always been, but there are new concerns too.
For example, the FCA’s Legacy Thematic Review, TR16/2, has introduced a new set of questions around the degree to which firms are responsible for ensuring that what they’ve done in the past is still in the interests of consumers.
For example, how do they make their propositions inherently fair to customers, while balancing this with the commercial needs of their businesses?
Questions around the economics and the commercial challenges of the traditional life and pensions provider also raise the topic of competition. Another Sorting Hat question for the optimists and pessimists.
The pessimists will tell you that companies unencumbered with the traditional life and pensions companies’ legacy systems and propositions have a natural advantage. Optimists may respond that the traditional providers have repeatedly shown their ability to adapt to regulatory and market changes, and transform their mindsets.
The jury is still out on these assertions, but certainly the traditional providers face three sizeable competitive threats. First, there is the challenge from the platform providers. Unfettered by legacy propositions and infrastructure, their business models are clean, streamlined and more economically compelling than many traditional companies they have in their sights.
Secondly, there is a competitive threat from the retail banks. They would love to have a foothold in the long-term savings market, and they have huge digital footfall through internet banking. Their reach, omni-channel experience and appetite for risk make them formidable competitors. Will this be the moment where the banks finally succeed?
The third threat is from pure digital start-ups – new entrants coming into the market, using technology to deliver solutions around advice and guidance and aggregation. Whilst some of these new competitors are very early-stage, the industry would be wise not to overlook their challenge.
So whether or not we can expect a new dawn around competition and regulation, I’m looking forward to some lively debate around these questions on 19 April. After all, the future of the industry could hang upon the answers.