Duty Calls

In 2018, the FCA released a discussion paper called Duty of Care, asking for feedback on their proposals for a radical shake-up of the delivery of advice. The Regulator felt that customers weren’t being provided with the level of information that they needed to make informed decisions or, where a risk had been identified, the customer was not being signposted to a potential financial solution. The end result, a new proposal called ‘Consumer Duty’ relating to products and services sold to ‘retail clients’. This is a wide term that includes all clients other than professional clients i.e. government bodies or large corporates. Where the FCA regulate the provision of financial services to SME’s it applies to those too.

The FCA believes that firms must do better, although it has not been specific in which markets and so expect all firms and markets to raise their game. Firms being required to ask themselves what outcomes consumers should be able to expect from their products and services, act in a way that looks to break down the barriers that might hinder these outcomes and assess the effectiveness of the outcomes on the customer. Essentially the FCA is asking all of us in the Financial Services Industry, be it Insurer, Lender, Adviser or distributor, to consider whether I would be happy to be treated in the way my firm treats its customers and would I recommend my firms products and services to my friends and family?

The proposal starts with a new Principle of “Consumer” and describes three key behaviours which cut across the rules and four outcomes it describes as key elements of the firm, effectively describing what it thinks should be Kay Leslie Compliance Director

the relationship with the customer. Many in the Industry feel that the existing high level principles including Treating Customers Fairly is enough, but this new Duty is coming and the FCA acknowledges that it will require a fundamental shift in culture and behaviour in firms to constantly focus on customer outcomes and put the customer in a position where they can act and make decisions in their interests.

What the FCA is looking for can be broken down into four key outcomes, the first being communication. This applies to every stage of the product/ service lifecycle, from marketing, to sale, and then post-sale care service, yet must be appropriate and take into account the likely recipients of the communication, with particular care given to communication with vulnerable customers. It should also take into account the complexity of the product or service the firm is offering and the channels that are used to communicate, and if issued at the right time in the advice process.

Next, we need to make sure that the right products are targeted at the right consumers, and reasonable steps are taken to avoid consumers to which the products wouldn’t be appropriate. Responsibility for this sits with everyone in the distribution chain and each should reflect the extent to which they are able to control or influence choices about the product design, its operation and distribution. The third outcome is centred on the disclosure of the scope of service and those charges that might be incurred, with particular reference to those who are vulnerable and may have a range of needs. Finally, we are introduced to ‘fair value’ measures which dictate that the cost of the product reflects the value of the product/service and is reasonable, relative to its expected benefits. What this outcome does not do is to require firms to offer products at or below a set price, cap operating margins, prevent firms from charging different prices to different groups of customers, although each must be justified as fair value, or mean that firms have to point customers to potentially better or cheaper products offered by another firm, except when it comes to free debt advice and the Financial Ombudsman Service.

Much of the work to embed Consumer Duty will fall to us as the Network to decipher and implement, especially around delivering the data sets that prove one way or another that this principle is being practiced. It will mean a change of business operation for some and for others a focus on best interests and fair value could be an issue. December will be interesting when further details are expected to be published for consultation – so look out for more information as this new regime is rolled out.