Competent Employees: Regulatory Requirements, Theory and Practice in Financial Services Firms

By The Enforcd TeamThe Enforcd Team
Competent Employees

Every regulated company is obliged by law to ensure that its workers comply with the “Competent Employees Rule”, as detailed in the FCA and PRA handbooks. This article takes a look at what companies can do to demonstrate – to themselves, regulators and customers – that they only recruit people who have the appropriate skillset and expertise for the roles they are performing. It also looks at the implications of poorly designed and implemented training.

The conduct of employees can have a decisive impact on a company’s success or failure. This means it is crucial for firms to make sure their staff are fully aware of their duties and responsibilities, and capable of carrying them out. This will enable them to uphold a good, customer-focused culture and comply in regulatory areas such as AML training. One way to make this happen is to define the qualifications and experience required of employees in certain posts. More importantly, though, achievement of an effective compliance system requires a clear focus on training: at the start of an individual’s employment, via refresher courses in the course of their employment and through training specific to their post.

Obligation to ensure staff competence

The duty to ascertain that all employees are competent to perform their duties in a regulated firm is contained in the Senior Management Arrangements, Systems & Controls (SYSC) section of the Handbook. It says:

“A firm must employ personnel with the skills, knowledge and expertise necessary for the discharge of the responsibilities allocated to them.”

Compliance with this regulation makes companies responsible for taking the following steps for all employees (whether approved persons or not):

  • Verifying their competence
  • Ensuring that they remain competent
  • Keeping records that demonstrate their competence

Competence – and how to achieve it

Generally, employees are deemed competent if they have the skills, knowledge and expertise required to perform their job. According to the Training and Competence (TC) section of the handbook, competence also encompasses ethical conduct.  Strictly speaking, this section is applicable to employees involved in the retail sphere, but the regulator has indicated that all companies would do well to bear it in mind in the context of the SYSC competence obligations.

Although the rules may sound straightforward, designing genuinely effective training systems can be challenging – and they can be similarly difficult to implement. As the FCA points out on its website: “[competence] .. includes achieving a good standard of ethical behaviour. It is not simply a question of having obtained the right appropriate qualification and/or reading the Statements of Principle for Approved Persons (APER) where this is required.”

Training for Approved Persons

People who become APERs not only have additional obligations but must qualify (and remain qualified) as fit and proper for their role. This is checked via assessments, the first done by the firm for which the candidate works and the second by the regulator. The assessments examine the candidate’s:

  • honesty, integrity and reputation;
  • competence and capability; and
  • financial soundness.

Under the second of these headings, candidates are assessed to establish that they have the skills, knowledge and expertise required to perform their duties, and they are also subjected to an ethical assessment. According to the FCA:

  • companies must establish systems for assessing employees’ competence that are based on precise criteria to ensure that everybody engaged in the process understands how and when competence is achieved.
  • they must always carry out regular follow-up assessments to ensure that individuals remain competent, and to determine what further training may be required.
  • they must take account not only of changes in the marketplace, products, regulation and legislation, but also of the skills, expertise, technical knowledge and conduct of their staff, as well as how able they are to apply these in actual situations. .
  • they must provide sufficient training to ensure the continued competence of their staff.
  • they must carry out regular checks to verify that the training is an effective means of achieving the desired aim .

Proper documentation must be kept of all these activities so that it can be made available to the regulators if needed. Such records can also be used to produce management information.

How to train effectively

Training adults is a far from easy task that requires careful design and implementation. According to Speck, writing in ‘Education Research Service Spectrum’ in 1996, a number of crucial components must be in place when training adult learners if the process is to be effective:

  • Adults will commit to learning when the goals and objectives are considered realistic and important to them. Application in the ‘real world’ is important and relevant to the adult learner’s personal and professional needs.
  • Adults want to be the origin of their own learning and will resist learning activities they believe are an attack on their competence. Thus, professional development needs to give participants some control over the what, who, how, why, when, and where of their learning.
  • Adult learners need to see that the professional development learning and their day-to-day activities are related and relevant.
  • Adult learners need direct, concrete experiences in which they apply the learning in real work.
  • Adult learning has ego involved. Professional development must be structured to provide support from peers and to reduce the fear of judgment during learning.
  • Adults need to receive feedback on how they are doing and the results of their efforts. Opportunities must be built into professional development activities that allow the learner to practice the learning and receive structured, helpful feedback.
  • Adults need to participate in small-group activities during the learning to move them beyond understanding to application, analysis, synthesis, and evaluation. Small-group activities provide an opportunity to share, reflect, and generalise their learning experiences.
  • Adult learners come to learning with a wide range of previous experiences, knowledge, self-direction, interests, and competencies. This diversity must be accommodated in the professional development planning.
  • Transfer of learning for adults is not automatic and must be facilitated. Coaching and other kinds of follow-up support are needed to help adult learners transfer learning into daily practice so that it is sustained.

Speck, M. (1996, Spring). Best practice in professional development for sustained educational change. ERS Spectrum, 33-41.

Senior staff and boards require carefully targeted training

It is also crucial to provide proper training for senior executives. Despite their extensive experience, they also require continual professional development, given the constant shifts in regulatory backdrop. The increased level of personal liability to which they are exposed is another factor that makes it as important to focus on their training needs as those of more junior staff.

In this particular group of learners, two of Speck’s principles are particularly applicable:

  • Adult learning has ego involved. Professional development must be structured to provide support from peers and to reduce the fear of judgment during learning.
  • Adult learners come to learning with a wide range of previous experiences, knowledge, self-direction, interests, and competencies. This diversity must be accommodated in the professional development planning.

It may be useful for compliance and training staff to take into account how difficult senior staff may find it to acknowledge that they require assistance and to define the areas they need to be trained in. Compliance staff will need to carefully consider how best to convey their requests to managers at a senior level.

Executive coaching may be one useful means of training very senior leaders: a coach (internal or external) may be best placed to offer confidential and objective guidance. Alternatively, group training alongside peers can work, as long as this is appropriate for the scale of the company and consistent with its culture. However, it is unlikely to prove successful if senior staff are reluctant to engage with the process. Similarly, in order for them to work effectively, such training sessions must be tailored to the group concerned.

A further factor likely to complicate training at the very senior level is the shortness of time available to the recipients. It will probably be more effective if sessions are relatively short and focused on aspects directly relevant to the roles of the participants.

Training SIF applicants

Firms must verify the competence levels of staff who are applying for a Significant Influence Function (SIF) prior to sending the application to the FCA. The regulator requires companies to show that their hiring procedures are sufficiently stringent, and that all SIF applicants have undergone proper scrutiny.  Its expectations in terms of due diligence offer a useful guide to all companies seeking to check and maintain the competence of their staff – both SIFs and non-SIFs. The application the company submits on behalf of the candidate must be accompanied by the following documents, as a minimum:

  • CV
  • Role Specification
  • Organisation Chart
  • Recruitment Process
  • Board and Committee Minutes showing discussion of the planned appointment.
  • Interview notes
  • Skills gap analysis
  • Skills Mapping Document
  • Learning and Development Plan
  • Board Biographies and/or executive team mix

It may be useful for firms to check and document the competence of staff at various different levels using skills gap analysis and skill mapping, since the FCA is familiar with this system and these documents.

Irrespective of their specific role, the regulator expects assessments of all senior staff to demonstrate their competence in the following areas:

  • The market in which the firm operates;
  • Business strategy and model of the firm;
  • Risk management and control;
  • Financial analysis and controls (Solo-regulated firms);
  • Governance, oversight and controls;
  • Regulatory framework and regulatory requirements and expectations.

It is therefore vital, when designing and implementing training systems, to include these aspects in the output.

Poor training can prove costly

One example of the price of failing to provide proper training was the fine of £30 million imposed on Homeserve in February 2014 – prompted in part by failings in this area. In its final notice, the regulator attributed the inadequate regulatory knowledge of executives to shortcomings in training; this prevented them from detecting and remedying problems that exposed clients to the possibility of unfair treatment and helped create a culture that prioritised profit over customers’ interests.

Similarly, when the regulator fined asset manager SEI Investments (Europe) Limited (SEI) £900,000 for client assets failings, it highlighted the company’s failure to channel enough resources into training for its staff – in particular in the area of the Client Money Rules. The result was that staff responsible for handling or overseeing the handling of client money made grave mistakes. One particularly egregious example, from February 2014, was the employee who assumed a £14 million shortfall calculated by the internal reconciliation was too large to be correct and manually altered SEI’s client money requirement from £14 million to £932,000. At the time of the incident, the person concerned had not been given any CASS training.

The FCA is not alone in emphasising the importance of effective employee training and competence assessment: these areas were also central in the guidelines of the new Banking Standards Body when it was setting out its remit and in the new Libor Code of Conduct. The BSB proposed the introduction of accredited training systems that would help companies achieve the standards of behaviour and competence it required. The Libor Code also dedicated a chapter to training.

In February 2014, the European Securities and Markets Authority issued a report entitled ‘MiFID practices for firms selling complex products’. The opinion it expressed in the report was that firms should be subjected to regulatory oversight to monitor whether they are using training to make sure that their employees have the skills, knowledge and expertise required for their role., This encompasses not only practical aspects directly related to their own job: they must also be properly familiar with all relevant regulatory obligations and procedures, as this will enable them to determine customers’ requirements and circumstances. They must also be knowledgeable enough about the financial services sector to have a thorough grasp of the financial instruments being sold, and to identify whether a given product is appropriate for a particular customer.

Concerns about effective training are not restricted to the UK: this is a global issue. Not only are good training systems crucial if companies are to ensure that their employees are fully compliant with regulations: they also bolster risk management and help improve the likelihood that a firm will be commercially successful.

For more in-depth articles by leading compliance experts request a demo of Enforcd today.


Why now is the time to embrace RegTech

By The Enforcd TeamThe Enforcd Team

Regulators are asking some tough questions, but RegTech can help financial services firms find the answers if they are willing to embrace new technology.

Banks and financial institutions face a challenging landscape. In a post-financial crash world, they are coming under intense regulatory scrutiny, but at the same time, they face a market which is becoming ever-more complicated and challenging. However, innovative RegTech could be the solution to their angst.

A threat and a solution

The RegTech Market is booming. Approximately £238million in venture capital was invested in the sector in the first quarter of 2017 alone. Its promise is to make compliance less expensive, complicated and time-consuming, and it comes in all shapes and forms.

Hedge Funds, for example, are employing AI algorithms to monitor a trader’s work, detect patterns and raise alarms if they do something out of character or which could breach regulations.

Sophisticated software, such as Enforcd, meanwhile, can collate vast amounts of regulatory and enforcement news and insight and provide an easy way for firms to share this information across an organisation.

Not only does RegTech reduce the time and effort involved with compliance, but it also significantly reduces the chances of a mistake being made.

Just on this basis, then, the case is compelling, but there is more.

Penalties for regulatory non-compliance have the potential to skyrocket during 2018, as demonstrated by the upward trend in the number of final notices served by the FCA since 2002:

Moreover, a report in 2016 warned that UK firms could face total fines of £122bn for data breaches with the arrival of GDPR and other new regulations. While a survey from Duff and Phelps suggests regulatory costs could more than double, with more than 89% of respondents saying their costs had increased.

New opportunities

RegTech, then, becomes a necessity for any financial services firm which wants to thrive in this challenging environment. However, this only represents the negative aspect of the return – namely the ability to minimise costs and avoid fines. Where it truly comes into its own is the ability to drive revenue, by opening up opportunities afforded by the digital economy.

The rise of technologies such as big data, cloud computing and artificial intelligence represents an enormous opportunity for financial services. They are being used to drive features such as sharing of information, the compilation of up to the minute reporting, predictive analysis, security and other more personalised services.  Using big data and AI companies can improve their conduct and culture and make sure customers are treated fairly.

For all these benefits, though, many firms are held back. Financial services companies are one of the most heavily regulated sectors in the world and they are coming under a huge amount of scrutiny in every aspect of their business lives.  So, while the new technology opens up possibilities, it can create an even bigger stream of information to manage.  This means that to some, the technology represents a problem rather than a solution.

However, RegTech is still young and it is constantly improving to meet the growing regulatory demands that lie ahead.  If financial services firms are bold enough to embrace RegTech now, then they will have the power to help shape it so that the emerging technology is best tailored to their needs.


Financial Services Regulation: What to Expect in 2018

By The Enforcd TeamThe Enforcd Team
Financial Services REgulations 2018

It’s a busy, demanding and unpredictable year ahead in the world of financial services regulation.

Happy New Year!

Now, buckle up because 2018 is likely to be a regulatory minefield.  New technologies, new rules and a fresh landscape all have the potential to create enormous problems. Some companies are better set up than others.

Fear and uncertainty

If I had produced this blog a year ago, one of the main themes I’d have been discussing would have been ‘uncertainty’. The landscape was moving quickly and it wasn’t clear what form regulatory changes would have. Brexit was up in the air with few key issues decided.

Unfortunately, I could also say the same thing today.

Brexit may have limped beyond the first phase of talks, but now comes the complicated stuff. Trade will not be discussed until March which means key issues will remain unresolved such as the free movement of people, and what access firms will have to European markets, and whether there will be a transitional period. All these ideas have been suggested, but nothing firm has, as yet, been decided.

Financial services firms, which rely on their access to European markets, and the free movement of talent across borders will have to consider what action they take. Many will spend 2018 taking action to ensure they have a presence within the European Union. Doing this will raise logistical and regulatory challenges both for firms and European regulators. The ECB will want to ensure regulatory consistency for those firms which are moving and, as with many aspects of 2018, they may undergo a learning curve. Expectations of regulators may well evolve over time, which means firms will have to be taking remedial measures on an ongoing basis throughout 2018 and even beyond.

A busy regulatory calendar

The first half of 2018 will be a hectic time for new regulations, which can have a transformative impact on many different industries. Firms are struggling to cope with not one, but several major pieces of regulatory reform. First up is MiFid II followed by Europe’s General Data Protection Regulation (GDPR). Both are two of the most significant regulatory changes ever to hit the financial sector.

MiFIDII (The Markets in Financial Services Directive) was brought in to ensure that the mistakes which led to the economic crash in 2008 could not be repeated. It covers everything from where derivatives are traded to how companies manage risk and offer transparency. Importantly, in this digital age, all communications with clients relating to a deal must be recorded and stored. This includes, where it is reasonable to do so, all telephone conversations.

It’s a big job. Firms will have to manage the storage and retrieval of relevant data as well as connected devices used to make such deals. For example, many cloud apps do not offer the level of storage and retrieval firms will require.

GDPR will also create enormous headaches for managers. It gives individuals greater control over the data that companies hold about them. We all have the right to be forgotten which means a firm will have to be able to quickly access and – if requested – delete any information they hold.

It also raises the stakes for compliance. Failure to abide by the new regulations could see firms being fined up to €20million or 4% of global turnover – whichever figure is higher. Penalties could represent a serious risk to the financial health of an organisation.

In a world in which businesses of all sizes, and in all walks of life, are handling vastly increased levels of personal data, demonstrating compliance will become tougher than ever.

Add to these two measures such as PRIIPS, the Insurance Distribution Directive and others and you have an incredibly busy schedule. Firms will find themselves liable to some or all of these measures, and ensuring compliance will become an enormous headache for compliance teams, as well as a financial burden.

Arise technology

Technology which can lighten that burden will continue to gain value. The so-called RegTech sector has enormous potential and is set to grow further in 2018. These systems can use new and existing data to automate processes and deliver new insights and greater transparency. They lighten the administrative burden of compliance and reduce the risk of falling foul of the regulator. For example, systems can provide aggregated global risk and compliance data, information on enforcement or developments in the regulatory landscape.

RegTech solutions like Enforcd help compliance officers stay on trend and maintain a keen eye on enforcement actions.  With features such as real time e-learning, audit trails of activity for internal and external use and reading lists that can be shared across organisations, companies can easily provide evidence to their regulators that they are learning from past mistakes.

The sector has been developing for some time now, but new regulations will make RegTech a necessity. Businesses have often stored call data, but with customers now being given the right to view and in some cases, delete this data, many will need technological innovation if they are to offer this capacity.

Equally, the slew of new regulations will create confusion with some contradicting one another. For example, MiFIDII requires companies to maintain a record of customer communications for five years. GDPR, meanwhile, gives people the right to be forgotten and to demand that their data is deleted. How is it possible to reconcile both measures? Technology will play a role in untangling contradictions such as these.

Managing consumers

As financial services embrace new technologies, there is the risk of some consumers being left behind. A good example is the closure of bank branches. Having previously promised never to leave a community without a branch, the Royal Bank of Scotland closed more than 250 branches and axed 680 jobs. Other banks are doing the same as they pivot towards online banking. It’s great for most consumers who regularly use the internet and rarely visit their branch. However, it excludes some who may not own a computer or may live in remote areas.

The regulatory approach has often been to focus on the so-called average consumer, but they now recognise that technology leaves some vulnerable. They will focus resources on groups at risk of coming to harm and what categorises an individual as vulnerable. It is much more dynamic. It doesn’t just mean income, but can include lifestyle, health, recent life events and much more.

Cyber Security

As financial services become even greater users of data, they are becoming targets of an increasingly sophisticated army of cyber criminals. These are more than geeks with a criminal bent. They are well-funded, technologically advanced, and in some cases funded by the Government. Earlier this month hackers for the Israeli Government broke into the antivirus giant Kaspersky only to find Russian agents were already there.

Financial institutions are ripe for attack and even though they should have some of the most sophisticated defences in the world, it is impossible to be totally secure as Equifax found out when criminals hacked into its database. Regulators are adapting their approach to take account of cyber risk. EIOPA, for example, has increased its focus on cyber risk and the FCA has produce guidelines on best practice for cyber security.

How prepared is your company?

Enforcd’s Global Regulatory Intelligence Platform can help you ensure your compliance monitoring programme is targeting the right areas.  Contact us at info@enforcd.com to find out more today.


Trader Paul Walter Fined After Ignoring Similar Mistakes by Others

By The Enforcd TeamThe Enforcd Team
Paul Walter

In 2001, Paul Walter joined UBS as a trader. He moved to the Bank of America Merrill Lynch (BAML) in 2013, and stopped working there in 2014. In November 2017, he was fined £60,000 by the FCA.

His offence was spoofing, a practice described in the MAR (Market Abuse), chapter of the FCA Handbook as

“…effecting transactions or orders to trade…which –

(a) give, or are likely to give a false or misleading impression as to the supply of, or demand for, or as to the price of one or more [qualifying investments] or

(b) secure the price of one or more such investments at an abnormal or artificial level.”

The FCA’s notice gives more detail.

“…on 11 instances during the Relevant Period, Mr Walter entered a series of quotes i.e. a bid and an offer quote, with high bid quotes that became Best Bid on the BrokerTec trading platform for the specific Dutch State Loan (DSL) he was bidding for, and worst offer. After some other market participants who were tracking his quotes had raised their own bids in response to his Best Bid, Mr Walter sold into the bids of other market participants and then cancelled his own quote. In doing so, on each instance he sold the DSL, he sold at a higher price than he would have secured at that time, had he not posted a series of misleading Best Bid quotes and then sold through his own bid.”

The FCA explained that Walter knew trading algorithms used by other market participants followed the Best Bid and Best Offer. The effect was that their users ended up buying DSLs at a higher price than they would otherwise have done, and sell at a lower price than they would otherwise have done.

Reasonably, the platform received complaints from other market participants. A profit of EUR 22,000 over two months was directly attributed to the strategy. He was given a chance to mend his ways when BrokerTec rang him to discuss his behaviour. He didn’t.

The embarrassing fact for BAML appears to be that its own trade surveillance team didn’t identify the behaviour.  Here’s a typical sequence of events:

  1. Best Bid at €143.209 in a size of 2 million.
  2. Firm A’s Best Bid at €143,193 in a size of 3 million (second place in order book).
  3. 09:57:57 Walter enters a bid for 2 million at €143,247 which becomes Best Bid.
  4. Firm A automatically improves its bid by 0.042 from €143,193 to €143,235 for 3 million, and maintains its second position in the order book.
  5. 09:58:00 With his bid in first position on the order book, Walter enters an order to sell up to 15 million at a price of €143,229 or better.
  6. Firm A buys 3 million at €143,235.
  7. 1½ seconds after the trade was executed, Walter cancels his quote.
  8. EUR 940 excess profit generated from the difference between the Best Bid before Walter’s manipulation, and the sale price achieved.

Walter keyed in quotes in the smallest size permissible (2 million), to minimise the downside in the event one of his quotes was accepted.  He executed trades on the other side in larger sums, once his Best Bid or Best Offer had been followed by others and then deleted his own quote.

It was very much the responsibility of BAML’s trade surveillance team to spot this asymmetric pattern, because the trading platform protected the identity of market participants from each other.

What were the other hallmarks of his behaviour? Same venue, same financial instrument, same trader, a small-sized offer to buy which raises prices, followed by a large sell order, no client orders matching his initial small quotes, nor position building of any sort.

A review of the way he ran his book showed that when he did acquire a large position from a BAML client, he wound that position down. The instances in which he sold to those tracking him coincided with when he was long on the relevant DSL.

A scan of the Enforcd database (using the market abuse and insider dealing theme) reveals much the same behaviour by Michael Coscia, (whose offence was manipulating the order book in commodities futures on ICE). Although his trading was algorithm driven, the strategy was identical:

“Mr Coscia’s trading programme was made of two “legs”. “Leg One” was to place a small order (typically 10 -20 lots) on the order book around the level of the best price i.e. the best bid or offer. Once the small order was in place (“resting”), several large orders (over 50 lots) were placed on the other side of the order book. The large orders were entered at progressively improving price levels. The sequence of events was timed to last a total of approximately 300 milliseconds after which the orders (small or large) would all be cancelled immediately and simultaneously if not previously executed… Other market participants were induced to place orders in the same direction, i.e. sell orders/offers, on the basis that the large sell orders represented a legitimate indication of seller interest.”

The Final Notice, and financial penalty of USD 903,176 was published in July 2013. If only Paul Walter had read it upon joining BAML.


FCA Financial Lives Survey: Avoid Having Children for a Healthier Financial Future

By The Enforcd TeamThe Enforcd Team
Financial Lives Survey

The FCA Financial Lives Survey was published on 18 October 2017. Titled “Understanding the financial lives of UK adults”, the FCA will use the Survey to identify potential consumer detriment. Results have already informed its Financial Advice Market Review Baseline report, the Ageing Population and Financial Services Occasional Paper, and will inform the forthcoming Approach to Consumers paper.

Moreover, the FCA will compare this year’ survey with future survey results, to try and measure the impact of policy change (which will naturally be wider than that implemented by the FCA alone).

In line with accepted independent financial advice practice, the FCA has organised its analysis by life cycle stage (i.e. 10 year age bands). Anyone familiar with asset accumulation and decumulation, and life cycle stages, can afford to skip much of the centre of this near 200 page document.

Despite the somewhat hysterical coverage in papers such as the Financial Times, and the Daily Mail, the overall picture is positive.

62% of UK adults have no unsecured debt (credit and store card debt not paid off in full every month, non-mortgage loans, motor finance and overdrafts). The average 35-44 year old owes £5,130. Those aged 75 and over owe £540. 18-24 year olds owe on average £1,460 excluding Student Loan Company loans but £8,750 including them. That places all average UK adults within the scope of a Debt Relief Order (DRO), an inexpensive alternative to bankruptcy (£90 fee), which discharges debts of up to £20,000 within a year, so long as individuals have less than a thousand pounds in assets, and no more than £50/month in spare income.

Half (50%) of 35‑44 year olds with a mortgage owe between £100,000 and £250,000, and one in ten (10%) owes more than £250,000. However, this is offset by the two fifths of 35-44 year olds (41%) with a household income of £50,000 or more, and the one fifth (20%) with a personal income of £50,000. That means the squeezed middle has a mortgage to income ratio between 2:1 and 5:1, which is by no means fatal.

Notwithstanding, those interested in financial comfort should avoid having children:

“one third (33%) of 35‑44 year olds with three or more financially dependent children are over‑indebted, compared with less than one fifth (18%) of those with no children.”

The FCA Financial Lives Survey is a must read for readers concerned with aspects of vulnerability. They will include Compliance professionals, first line of defence Monitoring and Testing teams, and auditors overseeing Compliance. The FCA sets out the following vulnerability characteristics:

· low financial capability,

· a physical or mental health condition,

· low financial resilience,

· recent life event(s),

and then provides the incidence rate for these occurring individually, or at the same time. For those used to identifying vulnerability by reference to capability, ill-health and life event alone, the inclusion of financial resilience poses a challenge. Credit Risk/ Conduct Risk policy owners would do well to revisit the intersection between affordability and vulnerability assessments. This requirement becomes especially acute where customers are placed in collection and recovery processes.

The rest of the survey gives metrics on trust in financial providers, self-confidence in financial literacy and money management, and financial products held (together with the channels used to access them).

Helpfully, characteristics of low financial resilience are given (Table A.2). These should form the basis of screening criteria for lenders (bearing in mind that they already consider total indebtedness):

· Missed payments in the last 3 or 6 months (across household bills and all credit commitments)

· No investable assets

· A rent/mortgage increase of £100 per calendar month would be a stressor

· Having less than a month’s worth of total outgoings in cash savings.

Life events leading to vulnerability include:

1. losing job/redundancy/ reduction in working hours (against wishes),

2. serious accident or illness (or of a close family member),

3. death of a parent, partner or child,

4. becoming the main carer for a close family member

5. relationship breakdown/separation, divorce,

6. bankruptcy,

Taking these in turn, permanent health insurance with optional involuntary unemployment cover is available (and mitigates loss of income arising from the first two). The financial impact of the death of a partner/ parent may be diminished using life insurance policies.

It’s hard to find cover for loss of income arising from becoming a carer. In the standard scenario of an adult caring for elderly parents, permanent health insurance doesn’t encompass the retired, and critical illness is for a defined list of conditions which excludes dementia (but does include Alzheimer’s). Pre-funded care home fee policies are no longer available. However assets can still be placed in a long term care or immediate needs annuity (life insurance policies covering the capital in event of an early death are an expensive extra).

Divorce is a tough one. Recent Office of National Statistics data shows that divorce rates among opposite-sex couples in 2016 were highest among men aged 45 to 49 and among women in their thirties (ages 30 to 39). 106,959 divorces were granted in 2016. By comparison, there were 181,000 motor related accidents in 2016 (most of which would have been covered by mandatory insurance). Therefore the sheer number of potential claims is not beyond the capability of the insurance industry. However, claims handlers would find it extremely difficult to identify whether a couple had pretended to split up in order to collect a pay-out.

It remains to be seen whether the FCA will use this survey data to lobby Government to mandate that couples with children (whether married or unmarried), take out relationship breakdown insurance.