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Increasing Regulation and the Erosion of Margins - UKPublished by: Mintel International Group Ltd. Published: Oct. 1, 2005 - 127 Pages Table of ContentsIntroduction Regulation winds still at storm force… …and will continue to blow strongly Concerns growing over the cost of regulation Focus of regulation in the UK revolves around the consumer Objectives of report Global information and research Consumer research ACORN Abbreviations Executive Summary Waves of regulation continue to pound the industry The coverage of the FSA is set to increase New support functions feeding off of regulation Costs of regulation continuing to climb… …and has an impact of business volumes… …and on margins Impact of new FSA regulations on consumers is mixed Consumer protection is the major driver of regulation Borrowing products biggest source of product purchase regret Not being advised properly biggest reason for regret Treating customers fairly Improvement in levels of trust and confidence in financial services providers to give good advice and sell suitable products Background to Regulation A brief history of change The Financial Services Authority Key objectives, principles and current structure Retail market coverage Figure 1: The statutory regulatory coverage of the FSA, 2005 Financial markets regulation: Deposit taking Insurance companies Investment Firms Mortgage and general insurance intermediaries Figure 2: Newly authorised and already authorised mortgage and general insurance permissions, 2005* FSA retail regulation 2001-04 Depolarisation Type and nature of advice Depolarisation implementation Introduction of basic advice - stakeholder products Statutory regulation of mortgage and general insurance sales Retail regulation 2005-07 Pensions A-Day, 6 April 2006 Consumer Credit Bill 2005 Features of the Consumer Credit Bill New Banking Code, March 2005 Store cards - Competition Commission report Provisional remedies Payment protection insurance - call for an OFT investigation The regulatory explosion No lack of opportunities for regulatory/compliance staff FSA business plan and priorities, 2005/06 Figure 3: FSA summary of priorities carried forward from 2004/05 and new initiatives - helping customers achieve a fairer deal Retail Financial Services Market Market size, structure and characteristics The consumer perspective Figure 4: Total net worth, residential property, financial assets and liabilities, 1993-2004 Figure 5: FTSE 100 values year-end and total financial assets, 1996-2004 Figure 6: Spending on major purchases in the next 12 months and intentions to save more in the next 12 months, January 2002-August 2005 Figure 7: Financial position of households, by income bands, August 2005 Figure 8: Savings, investment, borrowing and debt repayment, Q2/Q3 2002-Q2/Q3 2005 Regulating the economy through monetary policy Mind the gap Figure 9: Level of understanding of financial products, June 2004 Figure 10: Proportion of adults that understand specific financial terms, June 2004 Capable and confident consumers Greater transparency - clear, simple and understandable information The need for consumers to be able to make long-term financial plans is more important than ever Complex retail products require careful marketing and promotion and should only be bought by consumers if they understand the risks The industry perspective Steady progress in 2005 Figure 11: Legislation and regulation as a motive for CapEx authorisations, June 2005 The industry is at a crossroads The regulatory in-tray Simplified Prospectus Markets in Financial Instruments Directive (MiFID) Third Money Laundering Directive Treating Customers Fairly Figure 12: Treating customers fairly implementation agenda Complaint handling Principles and Practices of Financial Management Treating Customers Fairly - the evidence from main financial services providers Figure 13: Treating customers fairly, leading eight main financial services provider brands, 2005 Marketing and Selling of Financial Services and Regulation The importance of distribution The problems of valuing financial advice in product sales The impact of regulation On business volumes Figure 14: Expected changes of the impact of demand, competition and regulation on levels of business in the next 12 months, March 2004-June 2005 Depolarisation impact to date Figure 15: Distribution channels, life & pensions APE premiums, 2003-05Q2 The new Mortgage Conduct of Business rules (MCOB) Figure 16: Mortgage approvals for house purchase and value of secured loans for house purchase, March 2004-June 2005 The new general insurance rules (ICOB) Figure 17: Distribution channels, general insurance, 2003 Treating Customers Fairly Financial promotions Complaints and compensation Compensation costs The impact of stakeholder The Consumer - Trust and Confidence in Financial Services Financial relationships and trust and confidence Holding any product with selected providers Figure 18: Financial companies that consumers hold a product with and current account penetration, August 2005 Primary current account ownership Figure 19: Current account penetration/market share, 2000 and 2005 Attitudes towards the big five banking groups Figure 20: Attitudes towards the big five banking groups, August 2005 Trust and confidence Figure 21: Trust and confidence in financial services provider to carry out various functions, August 2005 Figure 22: Trust and confidence in financial services provider to carry out various functions, 2004 and 2005 Operate my accounts efficiently Figure 23: Trust and confidence in financial services provider to operate my accounts efficiently, by gender, age and socio-economic group, August 2005 Figure 24: Trust and confidence in financial services provider to operate my accounts efficiently, by current account provider, August 2005 Give me good advice on financial matters Figure 25: Trust and confidence in financial services provider to give me good advice on financial matters, by gender, age and socio-economic group, August 2005 Figure 26: Trust and confidence in financial services provider to give me good advice on financial matters, by current account provider, August 2005 Sell me suitable products to meet my needs Figure 27: Trust and confidence in financial services provider to sell me suitable products to meet my needs, by gender, age and socio-economic group, August 2005 Figure 28: Trust and confidence in financial services provider to sell me suitable products to meet my needs, by current account provider, August 2005 Ensure its staff are well trained Figure 29: Trust and confidence in financial services provider to ensure its staff are well trained, by gender, age and socio-economic group, August 2005 Figure 30: Trust and confidence in financial services provider to ensure its staff are well trained, by current account provider, August 2005 Trust and confidence and main current account relationship Figure 31: Aggregate trust and confidence by primary current account holding banking groups, all or most of the time, August 2005 Figure 32: Aggregate trust and confidence by primary current account holding banking groups, all of the time, August 2005 The Consumer - Purchase Regret and the Need for Regulation Slight rise in numbers of adults regretting a financial purchase Figure 33: Proportion of adults that have regretted buying a financial product, by product, August 2005 Around one in five purchase regrets surround mortgage endowments, credit cards or personal loans Figure 34: Proportion of adults that have regretted buying a financial product, by product (including only those that have regretted at least one product), 2004 and 2005 Young people have most regret for taking out credit products Figure 35: Proportion of adults that have regretted buying specific financial products, by gender, age and socio-economic group, August 2005 Figure 36: Proportion of adults that have regretted buying specific financial products, by lifestage and Mintel’s Special Groups, August 2005 People renting and on low incomes most likely to regret borrowing by credit cards and personal loans Figure 37: Proportion of adults that have regretted buying specific financial products, by working status, gross annual household income and tenure, August 2005 Reading popular tabloids and heavy TV watching are key attributes of people regretting credit card purchases Figure 38: Proportion of adults that have regretted buying specific financial products, by new technology users, newspaper readership and commercial TV viewing, August 2005 Reasons for regret Poor advice is the main reason for purchase regrets Figure 39: Reasons for regretting a financial purchase, 2004 and 2005 Young people are most likely to regret rushing into product purchase; middle age groups feel they have been poorly advised/misled Figure 40: Reasons for regretting a financial purchase, by gender, age and socio-economic group, August 2005 Figure 41: Reasons for regretting a financial purchase, by lifestage and Mintel’s Special Groups, August 2005 Mortgage endowment and personal pensions top the poor advice and being misled reasons for regret Figure 42: Reasons for regretting a financial purchase, by regretted buying specific financial products (top five), August 2005 Figure 43: Reasons for regretting a financial purchase, by regretted buying specific financial products (next five), August 2005 Regional analysis Fewer people have a financial purchase product regret in Scotland Figure 44: People with a financial product purchase regret, by TV region, August 2005 Figure 45: Leading types of financial product purchase regret, by TV region, August 2005 The Consumer - Complaints and Compensation Figure 46: Attitudes towards statements on complaints and compensation, August 2005 Attitudes towards protection and regulation Figure 47: Attitudes towards protection and regulation, by gender, age and socio-economic group, August 2005 ABC1 families and third agers are at the forefront of demand for consumer protection and compensation Figure 48: Attitudes towards protection and regulation, by lifestage and Mintel’s Special Groups, August 2005 Experience of complaining and receiving compensation Figure 49: Experience of complaining and receiving compensation, by gender, age and socio-economic group, August 2005 Figure 50: Experience of complaining and receiving compensation, by lifestage and Mintel’s Special Groups, August 2005 Clusters highlight attitudes towards complaints and compensation Cluster 1 - Armchair Compensation Seekers (25% of sample) Cluster 2 - Apathetic (50% of sample) Cluster 3 - Payers (8% of sample) Cluster 4 - Protection Seekers (12% of sample) Cluster 5 - The Dissatisfied (6% of sample) Figure 51: Cluster groups relating to compensation and complaints, by gender, age and socio-economic group, August 2005 The Cost of Regulation, Future and Conclusions The industry is at a crossroads Smaller firms suffer most under new regulatory regime The costs of regulation Figure 52: Proportion of financial firms that believe costs are excessive, 2004 Types of regulation cost The views of the trade towards regulation and the future Operating environment and market structure Confusion over cost of advice continues Repolarisation rather than depolarisation to emerge How to resource Attitudes towards the FSA Too much of a regulatory burden - particularly on small firms Concern about the quality of FSA staff in supervisory and guidance functions FSA becoming less zealous when introducing European Directives Treating Customers Fairly - better understood among major banks Too great a focus on consumer protection How much consumer protection is needed? The crucial question A greater role for government Built-in consumer protection Commission-based sales do not fit easily with impartial advice No shortage of industry monitors How successful has regulation been? Issues going forward Treating Customers Fairly Resolving the question of advice Anticipating consumer mis-selling/mis-buying The workload of the FSA The bottom line Conclusions AbstractMintel’s research offers you a unique examination of the impact of increasing regulations on financial services business and the extent to which it is eroding operating margins.Using last year’s report as a benchmark, this report will investigate the impact of the new regulations governing mortgages, long-term care, advice and general insurance. Combining the latest market trend data with the most insightful consumer research, Mintel’s report offers you a fresh analysis of:
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