The Financial Conduct Authority (FCA) must improve the way it measures and reports its impact on the financial services market and consumer outcomes.
A review conducted by the National Audit Office (NAO) also highlighted that the FCA must better define its high-level aims for the sector and suggested setting measures for success and targets.
The NAO examined the FCA’s performance along with three other regulators – Ofwat, Ofgem and Ofcom.
The NAO’s report included some positive elements, noting that the FCA was making progress in its self-assessment and that it had good insight into consumer concerns and issues.
However, its overall summary was that the four regulators must do better in being clear and specific about the outcomes they are seeking and offer greater transparency in reporting their performance.
‘Cannot give consumers confidence’ they are providing adequate protection
“They are not sufficiently specific and targeted in setting out what overall outcomes they want to achieve for consumers, and therefore what information they need to evaluate and report on their overall performance robustly,” the NAO report said.
“[They] understand the significant difficulties facing consumers across utilities, communications and financial services markets, but cannot prove if they are effectively responding to consumer concerns or offering enough protection for those who need it.”
But it warned that until regulators could define, measure and report their performance in protecting consumers in a meaningful way, “they will not be able to give consumers confidence that they are providing value for money, or adequate overall levels of protection for those who need it”.
Must show concrete results
The NAO highlighted that there was no common set of standards for how or what regulators reported on consumer outcomes.
And it again raised the point that regulators do not share a way to measure issues that cut across multiple sectors, such as affordability and debt, which it previously reported two years ago.
It said it expected to see clear signs of progress on the points raised with each annual reporting round.
Amyas Morse, head of the NAO, said: “Regulators need to do more to show the concrete results they are aiming to achieve for consumers.
“I understand that there is a difficult balance to be struck between long- and short-term outcomes, between the needs of businesses and the interests of consumers.
“But at present the regulators’ results can come across as somewhat academic and detached from peoples’ practical concerns and pressures.”
Consider the recommendations
The FCA said it welcomed the NAO report and that it provided a view of the challenges it faced when measuring performance and understanding what works well for consumers.
Andrew Bailey, chief executive at the FCA, added: “Protecting consumers is absolutely central to the FCA and where we have identified potential harm we have taken decisive action.
“Our recent work in the high-cost credit market, including implementation of the price-cap in the rent-to-own market, is just one example of this.
“Understanding the impact of our interventions is an important part of our mission to ensure that financial markets are working in consumers’ best interests. We will consider the National Audit Office’s recommendations when evaluating our work to protect consumers.”
The six points raised by the NAO are:
- Do more to translate their high-level intended consumer outcomes into what this means in practical terms. This should be underpinned by detailed indicators or targets that, where possible, are attributable to their regulatory performance, and that can be used to measure performance in protecting the interests of consumers. It is up to regulators to determine where targets may not be appropriate (for example where they are likely to lead to unintended consequences), and to demonstrate how they plan to measure success and drive improvement.
- Work together, for example through UK Regulators Network, to develop a consistent approach to modelling and measuring regulatory influence and impact, and providing links between regulatory activities, outputs and consumer outcomes.
- Ensure that their public reporting of performance includes clear benchmarks, trends over time and analysis of the underlying factors affecting outcomes.
Regulators should work in consultation with government and other key stakeholders to:
- Ensure there is clarity over how best to manage trade-offs between regulatory objectives or groups of consumers, particularly in areas that overlap with government policy such as affordability and vulnerability.
- Develop principle-based standards for public reporting of regulatory performance in annual reports or other regular publications. This should include consideration of how regulatory performance can be distinguished from other impacts, such as direct government interventions which affect consumer costs and outcomes.
- Set common expectations and standards for evaluating significant regulatory decisions and interventions, particularly where regulators cannot afford to do this within existing resources.