COMPLIANCE Paul Fothergill Regulatory Engagement Manager PMS
RESET OR RINSE AND REPEAT? – THE FCA’S NEW CONSUMER DUTY The Financial Conduct Authority (FCA) had been floating around the idea of a Duty of Care for some time. In 2021 the FCA took these plans further with consultation papers fleshing out their thoughts. The new title for this work is The Consumer Duty and the second paper introduced a new principle, namely: A firm must act to deliver good outcomes for retail clients. You can tell a lot about the importance the FCA is placing on this piece of work by the language they use to describe it. The word “reset” and phrase “shift in culture and behaviour” indicate that the regulator considers this work to be a key milestone in the regulation of financial services. Much about the new principle and the content of the consultation paper feels familiar to fans of the FCA’s previous work. So is this really a reset, or merely just a rinse and repeat of old regulations? The Consumer Duty is explained by the FCA as designed to set clearer and higher standards for the culture and conduct of firms, with the end goal being better outcomes for customers. This is certainly not the first time the FCA has introduced new regulations to try and improve the way that firms interact with customers. The effectiveness of the existing principles for business is one thing that the Consumer Duty is seeking to address.. However, the FCA has stated that the customer’s interest principle (Principle 6) and communications with clients (Principle 7) will shortly be pushed behind the scenes, with the new duty set to replace them to help provide the higher standard that the FCA is keen on achieving through this work. The Consumer Duty in the FCA’s mind seems to be the next step on from the treating customers fairly (TCF) rules, looking to hold firms more accountable for the actual outcomes that customers achieve after interacting with financial services products and services. That’s not to say that firms are responsible for ensuring that a customer never misses a mortgage payment, or that the stock market only ever rises. But the rules do want firms to do all they can to ensure that their customers are in the best position possible to achieve DISCOVER 4
good outcomes, through products and services that take account of their needs and circumstances and products offering fair value. The new rules set out that firms should put customers at the heart of everything they do, from product and service concept right the way through to product and service use. The work does feel like a culmination of multiple previous pieces of work, bringing together the regulator’s vulnerable customers, general insurance (GI) pricing practices and TCF work into one condensed principle covering all financial services activity. We’ve been promised more examples and information from the FCA to explain what it is that they’re looking for. Hopefully this will give some good examples for all different sectors including intermediaries, to help firms with implementation. As with much of the FCA’s work the devil is tucked away in the details of the requirements. Many advisers will already be putting customers at the heart of their business and doing all they can to meet the terms of the new principle, even before being told what it was by the FCA. The tricky part comes not just with making sure that you can meet all the requirements of the new rules, but with being able to provide evidence that this is the case. This is likely to require additional forms of information gathering as well as reviews of existing procedures and processes and following up with customers to understand the role that firms played in the outcomes they achieved. Even though the new Consumer Duty has a familiar feel to it, don’t be deceived into thinking it’s old hat. The FCA is throwing their weight behind the new rules, and we’ll be hearing a lot about them over the next few years and beyond. The final rules are currently set to be published in the summer of 2022, with plenty more information to follow about what needs to be done to meet their requirements. Although the requirements are unlikely to be ground-breaking to those who have been in financial services for a while, they are going to need thought and action to be implemented correctly.
