FCA feedback statement 21/7 is another significant step towards enabling workplace savings to become the cornerstone of financial planning for the tens of millions who can no longer afford traditional financial advice.
In it the regulator has outlined a bold vision for Open Finance and how it can transform the long-term savings market. The paper particularly recognises that customer data belongs to the customer, although they do acknowledge that there is some internal data that a savings provider creates through the operation of their services.
It also identifies improved consumer choice and competition as a primary benefit of Open Finance. If the Government really wishes to succeed in improving the long-term retirement savings of the mass British public, there is an urgent need to toughen up the TPR as a regulator. There is little doubt in my mind that had the
FCA been the overseeing regulator for the master trust community, we would have seen pensions dashboards delivered far sooner. Indeed I believe they would probably now be an active part of the pensions market, with massive benefits for consumers.
In my experience the TPR are really nice people, but they need to be tougher on their constituency. Frankly, too many master trust organisations are more interested in accumulating assets to grow their size than they are in serving the needs of the individual members. Nothing demonstrates this better than the appalling feet dragging we have seen in the pension dashboard project since 2016 which is now not expected to deliver a significant solution before 2023.
I have been saying for years that by the time pension dashboards finally deliver, Open Finance will have made them obsolete. This FCA paper feedback statement reinforces this view.
FS21/7 commits to adopting a similar consent model to Open Banking, the approach I have been arguing pensions dashboards should have been taking for several years. It also commits to a regulatory obligation for savings firms to provide Open Banking finance data.
Importantly it makes clear that while there will be a need for primary legislation to require this across all saving sectors, this will be delivered via the Department for Business, Energy and Industrial Strategy (BEIS) “Smart Data” project. Such legislation will be introduced as soon as parliamentary time allows. This will then enable secondary legislation which can then be used to compel individual sectors to meet such obligations. This will make it far harder for trust- based schemes to prevaricate and delay future efforts to deliver better information to consumers.
The feedback statement also acknowledges the work of the government’s Digital Identity Unit which is exploring the future use of digital identities. This work could have significant benefits in reducing fraud, which is a major issue for our industry. It could also streamline anti- money laundering processes, reducing another significant overhead for pension providers.
An inevitable outcome of this paper and Open Finance generally will be a transformation of the availability of data that consumers have the right to have access to. FS21/7 sends a very clear message, pension providers are going to need to provide information to consumers via trusted third-parties who will deliver Open Finance services. Currently the pensions community does not have the capability to support such communications in the way that will be needed. Given the FCA‘s clear intentions and the enormous consumer benefits this will bring firms should start planning now for how they will deliver this capability.
While in the short-term these changes may bring some pressure on pension providers, those organisations who best prepare for their implementation will benefit from reduced long- term costs and being a more attractive destination for consumers long-term retirement savings.
When combined with the emerging advice automation services I explored in this column last month, these can transform the UK long-term savings market. This will be great for the most important constituency, pension scheme members, but also bring significant benefits to both the advice firms that choose to grow their businesses to support this market and the pension providers who properly prepare for this transformation. There will be losers however, specifically those pension providers who continue to offer outdated one size fits all pension solutions with limited digital capability.