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Embargoed until 15:45 hrs 28/11/24

Inclusive Growth: Laying Foundations, Grasping Innovations

Speaker: Sarah Pritchard, executive director of supervision, policy and competition - markets and executive director, international, FCA

Event: The Investment and Saving Annual Alliance (TISA) Annual Conference Keynote Speech

Delivered: 15:15 on 28 November 2024

Note: This is a drafted speech and may differ from the delivered version

Highlights 

• The FCA welcomes the Government’s focus on financial inclusion and will continue to play our part through our new 5 Year Strategy.

• Improved financial inclusion and resilience can accelerate growth.

• Technological innovation, when well-managed, will play a key role.

Introduction

Financial inclusion, enabled by innovation, unlocks economic opportunity.

I saw this in action myself when I visited a debt charity in Glasgow recently.

Staff told me how clients used to walk in carrying literal shopping bags of paperwork – bank statements, bills, scraps of paper with notes jotted on them.

You can imagine the time it took trying to piece it all together, not to mention how overwhelming it must have been for the clients themselves.

Well now, thanks to the power of open banking, that is a thing of the past.

With just a few clicks, the charity can access a clear picture of a client’s finances…

Using faster and better-quality information to help them go from drowning in despair to a plan to decrease their debt.

From struggling, to stability, to shaping their local economy.

My visit showed me how innovation can kickstart a virtuous cycle that benefits everyone.

Because unless people are financially resilient, with access to the products and services they need, they can’t contribute fully to our economy and its growth.

Strategy

So, I really welcome the Government’s proposals to develop a National Financial Inclusion Strategy.

Particularly because we know that financial inclusion spans broad social issues from education to poverty to digital connectivity.

Areas where the Government can rightly lead a coordinated, coherent, and collaborative approach to this national challenge.

And it’s a challenge we shouldn’t underestimate.

Around 14 million adults in the UK have less than £100 in savings.

That’s roughly 25% of UK adults vulnerable to even a small financial shock.

As regulators, we don’t have the direct tools to increase incomes and put more money in people’s pockets.

But through things like the Consumer Duty and our Innovation Hub, we do have levers that, in partnership with others, can make a difference.

And consumer resilience will be a key focus in our next 5 Year Strategy too, which we outlined on Tuesday. 

By enhancing market integrity, protecting consumers, and promoting competition in financial markets, we can ensure wider access, better quality and less costly products and services.

And through our new secondary growth objective, we see further potential to support the increased investment, innovation and job creation that can boost financial inclusion.

Longer term resilience: financial capability, savings and investments

But to achieve genuine financial inclusion, we need strong foundations.

Financial stability and capability must come first. Only then can people feel confident to not just save but invest too.

Research has consistently shown us that good financial habits are linked to improved outcomes and wellbeing.

So better financial capability, basic numeracy and literacy will be necessary building blocks for success.

We welcome initiatives like those supported by TISA’s Financial Education Committee, to ensure everyone receives good quality financial education early in life.

But financial capability needs to be supported throughout life.

Workplace saving schemes are one promising solution, with trials by NEST showing that auto-enrolment schemes can boost savings participation by 50%.

Just imagine the impact of scaling that nationally?

The Consumer Duty also has a part to play in building these stronger foundations, by putting more responsibility on firms to deliver good consumer outcomes.

We have already seen positive steps under the Duty, for example on cash savings.

Since publication of our review last summer, we have seen better rates for savers, as well as improved communications from providers to their customers.

Average easy access rates increased to 2.11% in June, injecting an estimated £4bn a year extra interest into accounts.

That’s tangible impact and good news for savers.

Now, for those for whom it is appropriate, it must be a priority to develop a stronger investment culture here in the UK.

Barclays has reported that 13 million UK adults hold £430bn in cash savings.

That’s £430bn that could be working harder – boosting individual wealth for more comfortable retirements, and providing the capital needed to drive the growth of our economy.

And at the same time, the Department for Work and Pensions estimates that 38% of the working age population are under-saving for their retirement.

Yes, we often talk about the risks of investing – money can be lost as well as gained. But are we talking enough about the opportunity costs of not investing?

It’s time to shift that conversation.

Although the FCA does not have any statutory responsibility on financial capability, regulation can help.

According to the FCA’s Financial Lives survey, less than 9% of UK consumers took up financial advice in the last 12 months.

That is why we are working jointly with the Treasury on the Advice Guidance Boundary Review…

To make sure that consumers can get the help, guidance and advice they need, when they need it, at a cost that is affordable. 

We are accelerating this work, and plan to consult on proposals around pensions support before the year is out.

The role of innovation

As we search for solutions to financial capability and exclusion, we must be open to the opportunities of innovation and technology.

I mentioned Open Banking earlier, which some firms are already using to introduce savers to low-cost investment solutions.

Others are developing apps that help build resilience by automating saving.

At the FCA, our Innovation function has already supported around 200 firms developing various solutions to financial exclusion in the UK.

And at our TechSprint earlier this year, we saw teams creating solutions like anonymous debt advice chatbots, apps and AI tools to simplify complex financial terms.

One impressive proposal came from Moneyline CDFI and fintech Inbest.ai, who collaborated on their ‘Money Toolkit’. The portal uses existing loan application data to tailor bite-sized support for customers who have been declined loan credit.

These kinds of ideas could be game-changers for inclusion by making financial services cheaper and more accessible – especially for those who have been excluded in the past.

So we should absolutely continue to champion novel thinking on these challenges, but let’s remember: digital innovation does not begin and end with creating new products.

It’s also about better understanding their impact – tracking and analysing reliable data and using that to make informed decisions.

So, I would urge firms to share the outcomes from the initiatives they run.

And as technology does develop, we must all keep an eye on the risks…

Making sure that as we move towards more automated, AI-driven decisions, we are vigilant about bias and fairness.

Technology has enormous potential, but it has to work fairly for everyone.

Supporting consumers in financial difficulty

Even with the right foundations in place, there will still be times when consumers face financial difficulties.

So ensuring long-term resilience is about more than just preparation; it also involves intervention when needed.

Take credit, for example.

When used responsibly, it can be a lifeline for managing short-term, unexpected expenses.

So we want to see a well-functioning, accessible market.

And that’s one of the reasons that during the pandemic, we introduced temporary Guidance to help lenders support their customers in difficulty - Guidance now permanently incorporated into our rules.

But we also know that some poor structures in the past have led to unfair value – like excessive overdraft charges and high unarranged overdraft fees, which we simplified.

Not only did that save consumers almost £1bn since 2019, but our review found it did not reduce access to overdrafts.

We also acted on unsustainable credit through our Persistent Debt Rules.

Why? Because protecting consumers from harm doesn’t just help the individual; it stabilises the wider economy too.

There can be no such thing as sustainable growth if people are trapped in cycles of unaffordable debt.

That said, we also believe in proportionality.

Regulation must support fair outcomes without stifling innovation.

So as we design the regulatory framework for Buy Now Pay Later (BNPL) – which we have long called for – we’ll seek feedback on how to design appropriate consumer protections with flexibility for firms to grow and innovate.

BNPL products can offer real value to people at critical points in their lives, and we need to think carefully about affordability rules – setting them too high risks excluding people from the benefits of BNPL credit.

So, we will use this as an opportunity to examine our risk appetite, as directed in our Remit Letter.

I want us to take the opportunity of this reform – and the broader review of the Consumer Credit Act - to focus clearly on delivering good outcomes for borrowers and alignment with the rules for other credit providers.

This work isn’t just about responding to problems. It’s about building a credit market that empowers consumers, supports innovation and contributes to financial stability.

That’s the first step in helping people to save, invest, and thrive.

Conclusion

So where does this leave us?

We have a huge challenge before us – and yet I’m optimistic.

Because we have a real opportunity, underpinned by new technologies, and a government, regulators, consumer groups and - I hope - an industry, committed to reform. 

An opportunity to improve both short and long-term financial resilience, embrace innovation and remove barriers to inclusive growth.

We need to grasp it with both hands: boosting financial education, encouraging a saving and investment culture, and designing products and services that work for everyone across the UK.

What works in London might not work in Lanark, Lisburn or Llandudno...  

So, here’s my challenge to you all:

Are your products meeting the needs of your customers today and preparing them for tomorrow?

And what more could you do to empower your customers to build strong financial foundations?

Because the more inclusive our growth, the more transformative it will be.

Thank you.

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