Global: FCA Advocates a “New Enlightenment” for Financial Inclusion

During the Scottish Financial Enterprise event, themed “Extending Financial Inclusion” in Glasgow, CEO of the Financial Conduct Authority (FCA), Nikhil Rathi, outlined the regulator’s commitment to addressing financial exclusion in the face of the ongoing cost of living crisis. Rathi referred to this endeavor as a “new enlightenment” for financial inclusion.

Rathi emphasized that the FCA intends to use its regulatory authority to alleviate the challenges faced by those affected by the cost of living crisis. The agency’s focus will encompass areas such as financial education, technology, commercial incentives, and diversity, all of which are prevalent issues within the financial sector.

In his speech, Rathi discussed several developments in the banking sector that pose additional hurdles for the financially excluded, including reduced access to cash and eligibility constraints for credit products.

He stated, “We’ve implemented caps on payday lending costs and, in line with recommendations made three years ago, we are prepared to regulate the buy-now-pay-later sector to ensure consumers can continue to benefit from innovation while maintaining access to affordable credit, all while being treated fairly. In the meantime, we have successfully advocated for changes to potentially unfair and unclear terms in the contracts of Clearpay, Klarna, Laybuy, and Openpay.”

Rathi also highlighted Scotland’s efforts to enhance numeracy skills across the population, making it easier for everyone to make informed financial decisions. Additionally, he noted that increased research efforts would be directed toward AI technology, which can play a crucial role in assisting the financially excluded by monitoring digital identities and identifying areas where support is needed.

Addressing regulatory actions taken by the FCA, Rathi mentioned the Consumer Duty, a comprehensive reform introduced in July. Under this initiative, firms rejecting customers must provide explanations for alternatives and facilitate access to suitable products. The FCA aims to prevent a reduction in products or services in the best interest of consumers or reduced access to them. Rathi stressed the importance of considering the impact on affected customers, particularly those with characteristics of vulnerability, when withdrawing a product or service.

Rathi further informed that the FCA has instructed insurers to eliminate loyalty premiums, capped the costs of high-cost short-term credit to save consumers with low financial resilience £150 million annually, and prioritized ensuring that savings accounts offer competitive interest rates.

In conclusion, Rathi acknowledged the FCA’s broad remit and range of powers but highlighted that not all levers are within the regulator’s control. Some authority lies with governments, both in Westminster and the devolved nations, as well as with industry and consumers themselves. However, he emphasized that by collectively aligning these levers, significant progress can be made in addressing financial exclusion.