PIMFA
As of 31 July 2023, the new Consumer Duty rules for new and existing products and services come into force. In this video, PIMFA’s Director of Government Relations and Policy, David Ostojitsch, emphasises the importance of maintaining momentum to embed best practices and a culture of delivering good consumer outcomes.
WHAT IS CONSUMER DUTY?
The Duty is intended to ensure a higher standard of care across financial services for retail customers and to deliver good consumer outcomes throughout the life cycle of products and services.
- Why is consumer duty important?
This is a significant regulatory change with a need for a shift in culture and mindset to focus on delivering good outcomes for retail customers. The Duty is subjective and requires a holistic approach: firms will need to consider application of the duty in line with the size and type of firm and the firm role within the distribution chain.
- Background
The Consumer Duty is fundamental to the Financial Conduct Authority’s (FCA) 2022 business plan and April 2022-25 strategy.
The objective of the Consumer Duty is to stop consumer harms and ensure a more consistent standard of consumer protection for financial services users. This aligns with FCA business priorities 2021 – 2022 focused on consumer outcomes.
There is parliamentary and political appetite to address consumer harms (for example, as defined in the consultation, finding it harder to switch or get a better deal), particularly given the increase in vulnerable consumers because of the pandemic (as shown by responses to the (FCA) Financial Lives Survey 2020).
- Aim
The aim of the duty is to create a higher level of consumer protection in retail financial services. There is an expectation of greater supervision driven by the FCA’s new data-led and outcomes-based approach. Currently firms are bound by FCA rules and Principles for business, which include treating customers fairly, and ensuring products and services information is clear, fair and not misleading (Principles 6 and 7).
- ELEMENTS OF DUTY
The purpose of the duty is to deliver better outcomes for consumers across the whole consumer journey and aims to set a higher standard of care and expectation than the existing set of principles and rules with a package of measures:
- Consumer Principle 12 stating a firm must act to deliver good outcomes for retail customers.
- Cross cutting rules stating that firms must:
- Act in good faith toward retail customers
- Avoid causing foreseeable harm to retail customers
- Enable and support retail customers to pursue their financial objectives
read our CEO ROUNDTABLE REPORT ON CONSUMER DUTY
read our paper on consumer duty
FCA’s Dear CEO letter
Expectations for firms on Financial Crime and meeting Consumer Duty outcomes
The FCA’s Dear CEO letter for wealth management and stockbroking firms (8 November 2023), sets out their expectations for firms and notes their updated supervisory priorities of preventing financial crime and meeting Consumer Duty outcomes.
The FCA’s expectations of firms require meaningful changes to firm business, service and proposition to further drive good consumer outcomes. Firms should have fully implemented the Consumer Duty with the needs of consumers paramount.
The FCA outline areas of concern relating to Products & Services and Consumer Understanding, noting they expect firms to:
- Have a clear focus of the needs and objectives of the target market, ensuring products and services remain aligned to consumer’s needs, risk profile and circumstances, with reassessment of the vulnerability status of consumer
Further concerns relating to Price and Value are set out, including firms charging for services which are not delivered (such as ongoing advice), with the FCA stating:
- Firms should consider the value of their products and services, and regularly assess the overall cost and value for money and make changes when poor value is identified
- Embedding the Consumer Duty into the day-to-day culture and running of your firm must remain a key focus
On FCA supervision and enforcement, the letter notes:
- A new, dedicated financial crime function for consumer investments to focus on identifying firms with key fraud, scams or money laundering indicators
- Consumer Duty will be used to intervene quickly against potential or actual consumers harms
- FCA supervision will be more assertive, intrusive, proactive and data driven, with more short notice and unannounced visits with increased engagement on non-financial misconduct
Firms should also note that the FCA intend to send all firms a further data survey in December 2023.
Information-sharing under the Consumer Duty
Taking a proportionate approach to distributor-to-manufacturer feedback
In the same way as the Consumer Duty requires manufacturers to provide information to distributors about their products, it also requires distributors to provide information to assist manufacturers in their product review processes.
The FCA’s FG22/5 makes this very clear, stating:
“6.69 The requirement to provide information to support manufacturer reviews applies to all distributor firms in the distribution chain. We expect all firms in a distribution chain to co-operate.”
In developing a co-ordinated industry approach to distributor-to-manufacturer feedback, the joint trade association group has been mindful that all data points requested should have an actionable purpose and that the gathering, reporting and processing of information should be proportionate. Our document includes an overview of the data sought, the rationale for identified data items (quantitative and qualitative) and mechanisms for delivery.
Also inside this document is:
• Annex 1 which provides the agreed Data Reporting Template.
• Annex 2 which provides regulatory references relevant to distributor-to-manufacturer data flows.
Read the Distributor Feedback Guidance Note 28 July 2023 now
