More can be done to analyse the effects of the “poverty premium” that people pay for some financial services, a boss at the City regulator has told MPs.
The poverty premium means some people on lower incomes may find themselves paying more for basic services or struggle to access them at all.
Sheldon Mills, executive director, consumers and competition, Financial Conduct Authority (FCA), was asked by MPs sitting on the Treasury Committee about his assessment of the state of financial inclusion at the moment in the UK.
He said: “The starting point is that whether we have an objective on financial inclusion is a matter for Parliament and for Government to propose or not.
“We recognise throughout our work that there are major challenges for people, many people in this country.
“And with the cost of living crisis which is about to ensue, inflation is going up, wages aren’t increasing as high as inflation, there’s an energy cost etcetera.
“So we recognise that some people may struggle in the coming years.”
He highlighted aspects of the FCA’s work which already seek to support people, including guidance on treating customers fairly who are in vulnerable circumstances.
All firms should have the right systems and controls in place to identify and target that, he said.
Mr Mills said there are also deeper challenges, including those around access to basic bank accounts or insurance.
Mr Mills said if commercial providers cannot provide certain services the FCA’s role is to work closely with the Government, Parliament and other agencies, including the industry, to see if there are opportunities to gain access to them.
“In addition to that for specific issues like access to cash, the Government is consulting on that and we may get specific powers in order to ensure access to cash,” Mr Mills said.
He added: “Ahead of that we’re trying to do work with the banks… as they close branches just to make sure that they are thinking about people’s needs and the alternatives to them.”
Mr Mills said the FCA tries to go to the edge of its perimeter in order to help but there are some elements which will require “a coalition of a lot of people to tackle some of these issues.”
The committee heard people living in areas with more car crime may be penalised with higher insurance premiums.
Asked if the current approach was effective in reducing the number of people paying the poverty premium, Mr Mills said: “I think there’s more we can do to both analyse it and see the effects of it in areas like insurance and access to banking.
“And then working with industry to try and get a will to tackle some of those issues.”
Mr Mills added: “I’ll be very open and honest – I come from a community where actually people get very high car insurance quotes because within that community the risk is much higher.
“From a commercial perspective, that makes sense. From a poverty premium perspective it’s an issue that one needs to consider.
“I think we have to start to consider those issues whilst being sure that ultimately the financial soundness of the system is paramount as well.”
Mr Mills was giving evidence as part of the Committee’s inquiry into the future of financial services.
