Yesterday the Swedish financial supervisory authority, FI, released their yearly consumer protection report outlining the authority’s view on the main consumer risks in today’s financial services industry.

As in previous years, FI found that the consumer protection risk was closely linked to mortgages and consumer credits. Households with large debts may find it difficult to manage their interest payments if they experience a decline in their economic situation or in case interest rates increased. FI states that the financial institutions have an obligation to enforce responsible lending and FI shall deepen their investigation of both mortgages and consumer loan providers.

Another highlight of the report relates to the change in consumers’ payment patterns and the forming cashless society, e.g. swish and debit cards are gradually replacing cash payments. The rapid evolution of digital services sets high expectations for the financial industry among the consumers and the regulators. In particular, the financial institutions need to go that extra mile in ensuring the security of customers’ personal information as well as maintaining continuity of service, i.e. making sure the consumers do not suffer from interruptions or disturbances. FI has also noted an increase of fraud, which they plan to address by facilitating the discussion with the industry as well as law enforcement. The regulator highlights the importance of creating more advanced security solutions that ensure a higher level of consumer protection throughout the entire payment chain.

The low-interest environment has pushed consumers towards more risky investments. FI states that the authority is concerned about the consumers’ pursuit of higher returns since the levels of risk some take is not acceptable given their financial situation and their ability to manage any surprises. The risk is that financial advisors are tempted to behave unethically by aiding the customers in their chase for yield by offering them risky products with high fees.

During 2018, new regulations based on the European directives such as MiFID II came into force, which made it tougher for wealth managers to receive third-party commissions on the given advice. According to the new regulations, the investment firms can continue to receive these commissions providing the advisor can reasonably justify that the given advice is in line with customers’ interests. Despite this, FI’s survey shows that the majority of investment firms carry on receiving large third-party inducements. Moreover, according to this survey, the increase of risk in the portfolios of the consumers is still governed by the commissions received by the wealth manager rather than the consumers’ best interest. What’s more, the advisors carry on offering their clients complex expensive products that are difficult for their clients to understand and hence reasonably manage. For these reasons, the financial institutions’ product development processes, as well as the enforcement of the MiFID II directive, will become the key focus of the FI’s future work.

Kidbrooke Advisory believes that it is crucial for investment firms to prioritise the value generated for the customer over third-party inducements. This strategy would put the companies on track for timely compliance as well as increased customer satisfaction, which is a cornerstone for building the loyalty and long-term shareholder value creation. We offer a cost-efficient and highly automated solution to continuously monitor the value-add of your investment products offered to your consumers to help you in achieving your goals and improving your business model beyond compliance requirements.

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The full-length consumer report is found here