General information

 

The economic outlook for the year ahead is less benign than it has been in recent years and the downside risks have increased considerably since the previous FRO was published.

Financial Risk Outlook 2008

The current stresses in the financial markets are an overarching theme in the FRO and have given rise to new risks and highlighted existing ones. The pressure on firms’ business models and the lack of confidence in the financial system are such risks. In addition, a tighter mortgage market is likely to add further pressure on already highly-indebted consumers and we expect to see a growing number experiencing debt-repayment problems in 2008. Despite these increased areas of pressure, firms must focus on meeting their regulatory priorities and maintaining their business-as-usual processes.

The FRO has a section looking specifically at the risks facing retail intermediaries over the coming year. The key messages for small retail intermediaries are:

  1. Treating customers fairly is a key area where firms need to make faster progress. They need to do more to ensure that they are properly assessing customer needs, communicating with customers in ways that are complete, accurate and clear, and ensuring the quality of advice they give. By December 2008, firms need to be able to demonstrate that they consistently treat their customers fairly before, during and after the point of sale.
  2. Firms need to pay close attention to the sustainability of their business model. In particular, they need to ensure they have the strategy, financial resources (both capital and PI), capable staff and business continuity planning (for example, for floods or pandemic flu) that will enable them to survive pressures on their income and profitability, particularly in the light of the current economic outlook.
  3. Management and oversight within some retail intermediaries remain inadequate, resulting in weak control environments. Firms must ensure they have robust management and controls appropriate to their business (for example, controls over any conflicts of interest arising from remuneration arrangements), particularly where a firm relies heavily on third-party services. Ultimate responsibility for compliance cannot be outsourced and remains with the firm's senior management.