The shift to outcomes-based regulation presents challenges given the duty has a broad and wide-ranging impact across all aspects of business (e.g. firms will need to consider product suite, communications, end to end customer journey, changes to governance, product design and pricing in the context of demonstrating good value).
Key Challenges Include:
The change from principles based prescriptive regulation places an expectation on firms to review and adapt their communications, processes, products and services.
The significant steps firms will need to take to implement the duty (e.g. data/management information required for monitoring, reviewing and evidencing compliance) and the cost of compliance.
Consumer Principle 12
Consumer Principle 12: A firm must act to deliver good outcomes for retail consumers.
The Consumer Principle imposes a higher standard of conduct than existing Principles 6 and 7 – aiming to set a higher expectation of standards of conduct for firms (with an emphasis on consumer outcomes) and to harmonise rules across the financial services industry to enable good outcomes for retail customers. Compliance will require building on existing regulatory obligations – e.g. treating customers fairly, PROD and SM&CR.
What ‘good’ looks like across the industry will be variable, dependent on clients’ specific circumstances and outcomes may be impacted by market conditions and/or global geopolitical factors. Given the subjective nature of the duty, it will be increasingly incumbent upon firms to be able to evidence the steps taken to ensure good consumer outcomes in the event of this being challenged.
Cross Cutting Rules
Principle 12 is underpinned by cross cutting rules and four outcomes which aim to provide greater clarity to firms on the FCA’s expectations to drive a higher, consistent level of protection across the industry.
A firm 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.
As compliance with existing rules may confer deemed compliance with some elements of the duty, firms can utilise existing compliance procedures as a foundation for meeting their obligations under the duty (e.g. advice firms may find they already comply with these rules under the current regulatory framework).
Firms must give consideration to the four outcomes which set out detailed expectations of the firm-consumer relationship):
1. Products and services – products and services are fit for purpose, designed to meet consumers’ needs
2. Price and value – ensure the price of a product or service reflects fair value
3. Consumer understanding – ensure communications can be understood/help the customer make informed decisions
4. Consumer support – ensure the standard of customer service meet consumers’ needs and expectations
The FCA notes all products and services should be designed to take account of consumer needs, have an appropriate distribution strategy, and be reviewed regularly to check how they function in practice.
In consideration of the life cycle of a product or service a firm must demonstrate behaviours to enable good consumer outcomes: many firms across the industry, and most PIMFA members already demonstrate good behaviours by operating under advice permissions, acting in good faith and in the best interests of their clients.