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 does PIMFA care about Consumer Duty for its members?
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.
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 Financial Conduct Authority’s (FCA) Financial Lives Survey 2020).
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:
The FCA’s Sheldon Mills provided advice on implementing the Consumer Duty:
Implementation workplans (with board agreement by 31 October) are not expected to fully scope all the work required to embed the Duty, however, the intended actions should be included: plans should be sufficiently developed to assure expectations (of the board and FCA) are carefully considered and will be ready for July 2023.
The firm approach taken to engage with the Duty will be considered:
• Evaluate the level of work needed for application of Duty requirements and the cultural shift expected
• Consider how audit and risk supports the board and executive in reviewing Duty obligations
• Assess partnerships and dependencies in the distribution chain
• Ensure your data strategy is robust – it will be crucial to client monitoring
Firms are advised the suggestion of a NED for the Duty Champion is not mandatory (there is flexibility for the champion to be the chair, a deputy chair, or a non-executive)
Firms should set out their intended implementation journey over two years, inclusive of development of a plan for closed books (the FCA do not expect this to be as detailed as the plan for new and existing products or services)
The FCA expects more maturity in the distributor and manufacturer relationship: in addition to the information exchange, distributors and manufacturers should engage on fair value, target market etc.
Substantive compliance (i.e. all elements of the Duty) is expected by July 2023, although the FCA recognise this may take longer for complex products and services, firms are expected to reach a base level of client understanding for products, and a substantive level of compliance with fair value assessment by July 2023.
The FCA confirmed the Duty applies to Temporary Permissions Regime (TPR) firms and noted the communications outcomes will be of relevance for these firms, i.e. where a TPR fund manufactured in Ireland is marketed into the UK, the UK firm may be more fully in scope, but the communications outcome is the relevant part of the Duty to focus on.
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