The immediate FCA Consumer Duty Implementation deadline firms must consider is 30th April 2023, when they must have finished their review of existing open products. With the main rules coming into force on 31st July, 2023 for existing products and services, the FCA are expecting firms to be finishing laying down the groundwork and to be ready to move into the new Consumer Duty (the ‘Duty’) regulatory era. However, recent reports have stated that many firms are not ready for the Duty, with Money Marketing reporting that 73% of retail advisers have admitted as such and a recent Aviva Survey of 1,000 advice firms finding 59% stating they are not ready for the new Duty.
More worrying is the fact that a Citywire article stated that 84% of advisers felt the Duty was ‘a rebrand of Treating Customers Fairly’ and Sheldon Mills (Executive Director of Consumer Competition) recently stated that ‘[some firms have] adopted an avoidance tactic in hope that [the Duty] will go away’. It must be stressed that the Duty is a new overarching regulatory process and not a rebrand of old regulation. Firms need to be ready to implement the Duty or be able to provide evidence that it does not apply to them.
Click here for more information on how Complyport can help.
The Duty: Overview
By the 31st July 2023, firms with existing open products or services must be able to comply with the new Consumer Principle (with the deadline for closed products or services coming a year later on 31st July 2024), namely:
- A firm must act to deliver good outcomes for retail customers.
Compliance with the Duty and delivery of the Consumer Principle will be measured through the Four Consumer Outcomes as detailed in PS22/9. These outcomes should be focused on retail customers and firms acting in good faith, not causing foreseeable harm, and supporting consumers in pursuit of their financial objective and are:
- Products and Services;
- Price and Value;
- Consumer Understanding, and;
- Consumer Support.
For firms to which the Duty applies, it is important to remember that it is not only concerned with your direct customer base but also relevant to your whole distribution chain. If at any point your firm has a material influence, on retail customer outcomes, where a firm’s decision can have an impact on an outcome, then the Duty will apply to you under PRIN 2A.1.15G. Therefore proportionate action, based on your firms’ circumstance and size, should be taken to comply with the Duty.
FCA Guidance
The FCA produced helpful guidance on the 25th January 2023 regarding Consumer Duty, highlighting good practice they had seen so far. Our previous article focused on the key findings from the FCA review, namely firms needing to:
- Effectively prioritise;
- Embed the substantive requirements, and
- Collaborate with other firms within the distribution chain.
The guidance is broken into subject areas looking at the four outcomes individually, alongside deliverability, governance and oversight, culture and people, third parties and data strategies. Within this article we focus on the four outcomes and deliverability and some good practice the FCA have identified within firms’ implementation plans.
Products and Services
Firms do not need to ‘reinvent the wheel’ when it comes to their product governance plans and assessment frameworks. Firms simply need to take on the Duty and enhance their plans to be compliant. To do this, firms could rank their products and services based on the risk they pose to consumers and then implement actions that will ensure compliance. To measure this, more granular information could be gathered and reviewed to ensure products and service design aligns with the needs, objectives, and characteristics of the target market. If after review, it is found that products and services are not delivering the consumer outcome, then adjustments can be made to ensure compliance.
Price and Value
Consideration needs to be made regarding what fair value means in the context of each individual firm. By first defining fair value, firms can assess their value chains accordingly to ensure that this is consistently produced and rectified as needed. Fair value assessment is also an ongoing process and is not simply a one-off exercise. Firms should review based on consumer groups, existing price issues and consider non-pricing factors, focusing on how these will affect respective fair value performance.
Consumer Understanding
Consumers need to be given information in an understandable manner, and this could be affected by the language of communication, form of communication or vulnerabilities. Firms first need to understand the needs of their consumer base and then implement proportionate and appropriate support mechanisms to assist with their understanding. These mechanisms could be tested and adjusted accordingly, with different metrics being gathered (such as the percentage of consumers producing the expected action). If it is believed the consumer understanding is not being delivered or could be improved, then appropriate action can be implemented.
Consumer Support
An assessment should be based on clearly defined consumer outcomes, with the appropriate support being built for the delivery of these outcomes. The entire consumer journey should be analysed, with an assessment of the support at each stage being conducted periodically to ensure appropriate consumer support is always available. This analysis could be conducted through a risk-based approach with the journeys of the most vulnerable groups being prioritised accordingly.
In Summary
The key to being able to deliver compliance with the Duty on time is how the firm prioritises its workstreams. A risk-based approach could be appropriate with the most vulnerable streams being worked through first and so forth. The resources of the firm are also an important factor, so if there is a resource shortfall, workstreams should be prioritised accordingly to ensure upon implementation the most potentially damaging practices to the Consumer Principle are effectively controlled to ensure good outcomes.
How can Complyport help?
At Complyport, we offer a range of different services that can help firms through all the stages of the Consumer Duty Implementation journey. These include the following:
- Our online Implementation Readiness Assessment, which is a series of online questionnaires which can be used to evidence consideration for Consumer Duty (and demonstrate it not being applicable) but also identify gaps for you to start developing an implementation plan;
- Our Consumer Duty Service package, which includes:
- Diagnostic assessment of Consumer Duty applicability;
- Report Templates;
- Working Papers and applicable rules, and;
- Fair Value and Product Assessment Policy Templates.
- Finally, we also offer contracted and ad hoc consultancy to support firms with both pre and post-implementation deadline, with regulation interpretation and any personal queries.
If you are having issues with the upcoming Duty, need additional support or would like more information, please contact Jan Hagen via email at jan.hagen@complyport.co.uk to book in a free consultation.
