Supporting consumers in challenging times

Speech by Sheldon Mills, Executive Director, Consumers and Competition, delivered at the Building Societies Annual Conference. 

Speaker: Sheldon Mills, Executive Director, Consumers and Competition
Event: Building Societies Annual Conference 2022
Delivered: 5 May 2022
Note: this is the speech as drafted and may differ from the delivered version


  • Many consumers are feeling the impact of the cost of living crisis – the financial services industry has a role to play in helping consumers manage their personal finances.
  • Firms that are diverse and inclusive will deliver better outcomes for consumers and markets – we expect to see greater diversity in terms of gender and ethnicity in the building societies sector.
  • Open Banking will bring opportunities for building societies and their members, for example by enhancing members’ experience or improving greater data access – firms should unlock these benefits to consumers through innovation.
  • Later life lending is growing – to serve older borrowers well, suitable advice and responsible lending are key.

Building societies and other mutuals have been around for centuries. Your organisations collectively serve around 25 million members across the UK. With 23% of all outstanding mortgages, 18% of all retail deposits and 40% of cash ISA balances in the UK, you play an important role in providing services to a diverse pool of consumers.

Today, the values of mutuality remain strong – the vibrant Building Society sector supports members at the heart of communities throughout the regions. But over the years, the way consumers see and use financial services has changed. Societies and credit unions need to enhance their digital capability to stay relevant and deliver operational efficiencies, while not losing the essence of what makes them different and valued by consumers.

This morning I will focus on a few areas, starting with the FCA’s strategy and our commitments, and how we as a regulator will be raising standards through our new Consumer Duty. I will then cover the impact of the rising cost of living on consumers, and how your firms can best support consumers when offering products such as interest only or lifetime mortgages. And finally, a few brief words on ESG and innovation.

Our Strategy

Last month, we launched the FCA’s three-year strategy. It sets out the direction of travel for our ambitious vision for financial services. It prioritises our resources to target 3 strategic themes – reducing & preventing serious harm, setting & testing higher standards, and promoting competition & positive change.

To deliver the strategy, we have set out 13 commitments that will help us to be more transparent about the outcomes we are seeking to achieve, and we will hold ourselves accountable for delivering these outcomes.

Don’t worry, I won’t go through our 13 commitments one by one like I'm explaining the 10 commandments. But a few of them are particularly relevant for building societies and credit unions.

We want you to put the needs of your consumers first, including those in vulnerable circumstances. We want you to reduce the risk of failure and the consequential harm to consumers. And we want to reduce the level of financial crime, such as authorised push payment fraud, experienced by consumers. Today I will focus on the first of these, which is about meeting consumer needs.

New Consumer Duty

An important part of our strategy is raising standards in firms, and central to this will be our proposed new Consumer Duty. Some of you joined our BSA members roundtable in February and have responded to the consultation. From this engagement, we know that the BSA and many member firms support our drive to ensure that firms step up to put consumers’ needs at the heart of what they do.

The Building Society sector has some success stories in this. During the pandemic, you demonstrated an excellent focus on the consumer outcomes that the new duty aims to embed across the industry. You showed the sector at its best: keeping branches open, keeping telephone lines covered and quickly providing the forbearance struggling borrowers needed.

As a sector, you have also made strides in helping communities maintain access to cash. For example, the recent announcement by Newcastle Building Society shows the value regional societies can add for local people, by introducing a pilot that allows members of all major banks to withdraw notes, deposit notes and coins through the Society’s network of high street branches in areas where bank closures have seriously affected access to cash.

This is providing a lifeline for consumers and small businesses who rely on regular deposits and withdrawals to maintain their day-to-day budget. An exciting development that I am sure we will all be watching with interest.

But we cannot afford to be complacent. It is essential that you monitor and test outcomes across the consumer lifecycle: clear and timely communications, products & services that meet consumers’ needs, customer service that enables consumers to benefit from the products and services they buy, and pricing products and services that represent fair value for consumers.

I encourage you to put yourselves in your members’ shoes and ask: would I be happy to be treated in the way my firm treats its members? Would I recommend my firm’s products and services to my friends and family? Would it be easy for the typical consumer to understand whether my firm’s products and services suit their needs?

The extension of our Product Design and Fair Value rules will be particularly relevant for building societies. This is a key change for lenders and the first time these rules will apply to your sector. They will ensure products and services are fit for purpose and targeted at the consumers whose needs they are designed to meet, and represent fair value to those consumers.

We’ve now consulted twice on our proposals and expect to have a policy statement and any new rules finalised by the end of July. We are keen to keep up the constructive engagement we’ve already had with the BSA and to work with you, and others, to provide more clarity and support as the Duty comes into force. And we will provide more detail on how we intend to supervise and enforce the Consumer Duty over the coming months.

The rising cost of living

But as we raise the standards for financial services in the UK, we are now also seeing consumers facing increasing pressure from the rising cost of living.

Millions of people across the country were impacted by the pandemic and will be impacted by the current economic climate, with geopolitical events such as the war in Ukraine impacting supply chains and increasing the costs of daily necessities.

Inflation is now running at 7% and set to reach a 40-year high. The cost of living is at a 30 year-high, with the Office of National Statistics reporting that over 8 in 10 adults reported an increase in their cost of living in March. In the same study, respondents attributed the common reasons as increases in the price of food shopping (90%), gas or electricity bills (79%), and the price of fuel (71%).

Many consumers will feel the impact in their personal finances, but we are particularly concerned that consumers least able to bear the rises will be the hardest hit.

Turning first to mortgages, although interest rates have been at historic lows, base rate has moved back to its pre-pandemic level with an expectation of further increases. We know that many borrowers have taken advantage of the low rates in recent years, with three quarters of mortgage borrowing on fixed rates.

That still leaves many consumers on lender’s variable rates. Although arrears levels remained relatively stable during the pandemic, the rise in household debt and current economic uncertainty pose a risk to this.

In addition, consumers may feel the pressures from other types of borrowing such as personal loans, credit cards debts and increasingly buy-now-pay-later or other forms of credit. This is in addition to council tax and other outgoings that can place pressure on household budgets.

Together with the wider financial services industry, you have a key role to play in supporting consumers’ personal finances in this difficult time.

So what do we, as the regulator, expect of lenders at this time? We expect you to support members struggling with personal debt or showing signs of financial difficulty during this period, helping them obtain the advice they need and avoid falling victim to scams or illegal money lending.

We expect you to consider whether there is anything you can do to encourage borrowers to think about switching to a less costly option where that is available. We also expect you to consider what you can do to help consumers whose fixed rates products or deals are expiring and are expected to experience a sharp hike in prices.

We expect there to be effective early engagement and communication with consumers, ensuring that borrowers are aware of where they can get help and also of the risks of taking on different types of debt or credit. Our Tailored Support Guidance, published last year due to the coronavirus pandemic, remains the standard for firms when dealing with borrowers in financial difficulty.

We expect you to engage early; train staff so they are able to identify and work with borrowers with vulnerable characteristics; and ensure good outcomes for your members by tailoring forbearance to individual circumstances.

People’s ability to maintain an income from their savings and investments may also be affected.

All financial institutions, including building societies, should consider the base rate rises and how you balance your mortgage and savings rates. In particular, you should ensure that you are providing fair value to savers. In saying this, I recognise that many of you do have competitive savings rates in the market, but I would expect these rates to be regularly reviewed – including when base rates are raised.

We also need to make consumers, particularly those who rely heavily on their savings, aware of some of the risks of more speculative investments at this time, and ensure that they know where they can get help or advice with any choices. We need to help consumers avoid making investments based on misleading or unclear financial promotions or advertisements, especially online.

Finally, we need to ensure that those who aren't yet struggling know how to reduce their outgoings. For instance, if they need to switch products they should be given support with finding a better deal. This sort of approach can help a little towards alleviating the risks of this crisis. So that is supporting consumers. We, as a regulator, will also closely monitor the impact on firms' business models.

Another key commitment in our three-year strategy is to ensure that firms are operationally resilient. The cost-of-living crisis and the geopolitical uncertainty may challenge this ambition. Like other firms, you should monitor and be ready for cyber risks and for sudden hikes in the volume of consumer contact.

You should consider scenarios that may test your operations, to ensure that your processes, systems and controls are adequate. And to withstand any increase in distressed borrowers or defaults, operational failures and fraud. No one knows how long or how deep the cost-of-living crisis will be, but I think the old adage applies, we should hope for the best, plan for the worst.

As a regulator, we will continue to work with you and the financial services sector to monitor, manage and mitigate any harms to consumers due to the rising cost of living.

Interest only mortgages and Later Life Lending

At this point I want to briefly mention two areas where economic uncertainty is likely to affect borrowers – they are interest-only mortgages and later life lending.

Back in 2013, we asked the industry to pay attention to the risk of non-payment of interest-only mortgages at maturity. There has been much progress since. We have passed through the first peak of maturing borrowers and were pleased many were able to repay, but there are still around 1.1 million interest-only mortgages in the UK, with a median of 9 years until maturity.

Many of these borrowers may be less well- placed to repay their mortgages. Together, we need to better understand the situation of these borrowers and the problems they may face. I ask you to consider how you can remind borrowers of the need to work with you to try to avoid the risk of them ending up having to sell their homes.

For most borrowers, there is enough time to put a plan in place if they engage now, whether that is switch to a repayment mortgage, make overpayments or extend the mortgage term.

The other area I wanted to mention is later life lending, for example lifetime mortgages. We have seen a huge growth in the sale of this product, from 23,000 in 2015 to almost 45,000 last year.

Where previously this market served older consumers looking to unlock property value for higher living standards, today it provides for a broader range of needs, such as repayment of secured and unsecured debt, supplementing poor retirement income, and supporting family members.

We outlined our concerns with how lifetime mortgages were sold, for example, insufficient personalisation of advice; insufficient challenging of customer assumptions; and lack of evidence to support the suitability of advice. We wanted to see improvements in this area and I encourage you to consider if your firm could do more to support consumers through the sales journey.

ESG and innovation

Finally, a few words on ESG, diversity & inclusion, and innovation – and what they mean for you.

We launched our ESG strategy at COP26 in November of last year, and that strategy looks to build trust in the market for ESG products and to ensure transparency along the value chain. We don’t want to see such an important issue being reduced to a hollow marketing opportunity.

Building societies and credit unions should consider this in the context of designing and distributing products like green mortgages. You should consider how these products are delivered to consumers and the associated marketing and customer communications.

You and other mortgage lenders can play a significant role in decarbonisation, given the impact of housing stock on Scope 3 emissions. For those with a mortgage, whether as owner-occupier or as a landlord, there is clearly the possibility this could be used to enhance the energy efficiency of the property.

The trick will be in finding the right incentives to promote the take-up of affordable additional borrowing that permits retrofitting measures such as insulation, double glazing, or solar/wind power to significantly improve the efficiency of properties.

Moving on to diversity and inclusion, this is something that is important to the FCA. We believe that firms that are diverse and inclusive will deliver better outcomes for consumers and markets. We expect to see greater diversity in terms of gender, ethnicity, social mobility and other characteristics. It is also essential to ensure you have a psychologically safe culture, where employees are heard and their contributions valued. Few organisations are completely on top of this issue. We all certainly have more to do.

Lasting change will only come through strong leadership, the tone from the top and a commitment to act. Ask yourselves whether you are representing the communities you serve. Are you addressing those issues of under-representation? Have you identified the barriers some people face in progressing their careers? What could you do to further empower employees? Recruitment and investment in your people should be a key area of focus. I also encourage you to consider how you are monitoring where you are now and where you need to get to. Data is key to achieving lasting change in building an inclusive culture.

Now turning to innovation, it is a big topic for financial services, but I will focus on just one area today.

The Treasury have proposed to give the FCA a secondary objective to support long-term economic growth and international competitiveness of the UK economy. We welcome this, and it builds on the work we have already been doing. For example, our ‘sandbox’ is a regulatory safe space to test innovative products and this concept now serves as a blueprint for over 40 regulators globally.

Open Banking fits well in this context. It has brought innovation and benefits to consumers and businesses. There is no doubt that it will bring opportunities for building societies and their members too, for example by enhancing customer experience or improving greater data access between firms.

This can give consumers better tools to manage their personal finances, matching them with products and services suited to their needs. The UK has been a global leader in this area and, at the beginning of this year, there were over 5 million users of services powered by Open Banking technology.

We are pleased that the Government and other regulators are committed to supporting its continued growth. I encourage you to consider how your firm can benefit from Open Banking and unlock greater benefits to consumers.


This brings me to the end of my speech this morning.

In times of economic uncertainty, consumers need to know that firms are there to support them and the regulator will act to protect them from harm. Building societies and credit unions have been supporting members for hundreds of years, and will continue to be well placed to stand by their members to deliver good outcomes in difficult times.

I’d like to express my thanks again for the great demonstration of consumer care your sector showed during the pandemic and I feel confident you will continue to lead the way.

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