In a speech delivered by the FCA’s Sheldon Mills at the Financial Inclusion Virtual Summit 2022, the regulator has stressed the importance of improving financial inclusion.
What is financial inclusion?
Financial inclusion is defined as: individuals, regardless of their background or income, having access to useful and affordable financial products and services.
According to research by the Inclusion Foundation, financial exclusion is a significant problem in the UK with one in four adults expected to experience financial exclusion at least once in their lives.
Consumers, especially those with less savings, may find themselves in the difficult position of having to decide between managing their immediate needs and planning for the future. They may, for example, decide not to take out discretionary insurance, cancel existing policies or reduce cover.
Insurance is designed to help consumers to withstand financial shocks when things go wrong, but one in ten adults in the UK do not have an insurance product. Low-income households are less insured and, when they do have insurance, pay higher premiums or face more expensive monthly payments.
The FCA wants to see consumer journeys for new and existing customers that are “clear, transparent, and accessible – including to consumers with characteristics of vulnerability.” Resilience (including financial resilience) has previously been identified by the regulator as one of the drivers of vulnerability and the impact of the cost of living will be felt hardest by those already struggling, potentially exacerbating existing vulnerability. The Institute of Fiscal Studies expects that the poorest households will face average inflation rates of as high as 14%, compared to 8% for the richest households. Firms are expected to identify customers in vulnerable circumstances and work to provide them with the products and tools to support them.
Mills says, “When people go through tough times, it’s important that we find ways to support each other. The events of the past three years place a continued level of stress on the economy and this stress has reached right into the homes of many in the country […] I am optimistic that our Strategy, together with our proposals for a New Consumer Duty and our work on innovation, can help to bridge the differences in our background and circumstances, and can encourage our vibrant financial services industry to help shape a fairer, more prosperous, and inclusive society.”
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