Low interest rates indirectly putting savers at risk, warns FCA

The Financial Conduct Authority (FCA) has warned that continuing record low interest rates are leading many people to take risks and to potentially make bad investment decisions as they search for a decent return on their savings.

In its annual Business Plan – a document which broadly sets out the authority’s objectives across the areas falling within its remit – the FCA outlined various concerns about the financial state of the country, including low interest rates. It warned that, with a typical savings account currently paying just 0.33% in interest, many savers could be tempted to expose themselves to high levels of risk as they seek to find vehicles that will offer a greater return.

The FCA also sought to caution pension savers when rules come into effect in April 2017, allowing them to sell their existing annuity or retirement income for a lump sum in a new secondary market.

It said: ‘There are several risks we need to consider, for example, the risks of mis-selling and poor value for money for consumers, particularly those with small pension pots and the risk that our interventions undermine competition or stifle market development’.

The Business Plan also contained warnings for financial firms about the ‘inevitability’ of cyber-attacks. The regulator did welcome the increasing availability of innovative financial vehicles such as crowd-funding platforms, saying: ‘While the proportion of the market accounted for by crowd funding platforms is relatively small, it may grow and become a more significant issue, highlighting the fact that innovation can drive competition’.

However, the FCA then pointed out that such innovative platforms ‘also come with new risks’ and were not all covered by its regulatory remit.