Early this morning the FCA confirmed plans to bring in a new Consumer Duty in an attempt to improve consumer experience. It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.
In reaction to these new guidelines industry professionals have reacted:
Verona Kenny, Managing Director, Intermediary at 7IM said: “We need to get it together as an industry. By this I mean we need to drive clearer communications to enable clients to make more informed decisions and as such we welcome and completely support the FCA’s decision to introduce Consumer Duty. As an industry we have come far over the last decade but we should all strive to go from good to great. All our clients deserve us to be great for them.“7IM has built its business by shaping we what do around our clients, and many of the Consumer Duty requirements are already deeply embedded in how we conduct business. Chief amongst which are our exceptionally high levels of service, straightforward and jargon-free communications, cost-conscious fees and lack of exit charges. So, we applaud the regulator for bringing in rules which require our industry to follow standards that will drive better outcomes for clients. At 7IM we strive every day to be great for our clients, great in the service we provide, great in our products and great in the overall experience we provide, and to this we ask UK Financial Planners to hold us to account for their clients.“We are currently working through the regulations and will be implementing them within the 12-month period, while, of course, working closely with all the adviser firms we partner with to support them with their own implementation of the rules. After all, Consumer Duty impacts our entire industry so the more we get together to implement the rules, the better the outcomes are likely to be for clients.”
Mark Spiers, Partner at Bovill, comments: “The publication today of the FCA’s Policy Statement on Consumer Duty is the culmination of a multi-year effort by the regulator to put achieving fair outcomes for the consumer front and centre of financial regulation. However, the assumption that all firms have been working on Consumer Duty since it was first proposed is wrong. Whilst many firms have put fair treatment of consumers at the centre of their business for some time, this regulation requires a change of emphasis to look at fair outcomes. This change has been difficult for many smaller and medium-sized firms to interpret and implement to date, as a result some have been avoiding what they see as a difficult task and anticipating or hoping for a longer implementation timeline.
“In addition, in order for the new rules to be effective, good governance and controls will be required backed by deterrence based on a credible threat of punishment. The FCA have said they will draw on the Senior Managers Certification Regime (SMCR) to help deliver the Consumer Duty agenda, but research from Bovill has called into question the efficacy of this regime, which has resulted in only two penalties in six years.[1] The FCA will need to use both SMCR and Consumer Duty together to ensure that senior managers ensure their firms deliver against this new regulatory package.
“This is a far-reaching regulatory package, that brings this sort of consumer outcome focus to some firms in the value chain for the first time. Firms across the buy-side investments, consumer credit, lending, insurance and payments sectors need to consider it seriously. It is vital for firms to map it across every element of their business model to understand where the impact for them might be. For many firms it will be an evolution of the work they already do to treat their customers fairly, but some firms will have significant work to do to understand what achieving consistently fair consumer outcomes looks like for them and implement a robust set of systems and controls to achieve them over time.”
Nick Bayley, managing director within Kroll’s Financial Services Compliance and Regulation practice comments: “This is no simple re-badging of the longstanding TCF (Treating Customers Fairly) rules. Firms’ current obligations to their customers are often seen as rather passive “A firm must pay due regard to the interests of its customers…(Principle 6), whereas the new consumer principle to ‘act to deliver good outcomes for retail clients’ (Principle 12) is a much more active responsibility.”
“Firms will undoubtedly welcome the FCA taking on board their feedback and extending the implementation period for new and existing products by an extra three months to July 2023. But firms should still not underestimate the amount of work that may be necessary to perform their gap analysis and then implement this significant change.”
“The Regulator clearly believes that many firms do not sufficiently consider their retail customers’ interests and is placing the new responsibility for achieving good customer outcomes fairly and squarely on the shoulders of the firms’ governing bodies.”
Zoe Young, a partner at Baringa, said: “Many customers do not fully engage with, or understand, the financial products they are signing up to, and unread terms and conditions are a symptom of this. As inflation mounts and a possible recession looms, many products, such as reliable insurance and secure investments may become less affordable, yet more important. This increases the importance of financial firms ensuring their products are understandable to customers.
“On a wider level, without defining what good outcomes are and how to measure them, companies will struggle to make meaningful progress and risk failing to meet the Consumer Duty requirements.
“Firms should step back and view these changes as an opportunity: the Consumer Duty is a chance for financial services companies to realign their strategy and forge a closer link between customer service and corporate strategic objectives.”
Jonathan Herbst, global head of financial services regulation at Norton Rose Fulbright, said: “The Consumer Duty represents a step change for firms in how they are expected to treat retail customers. These proposals are part of the FCA’s broader push to ensure that firms are proactively doing the ‘right thing’ for customers.
“It will be important for firms to interpret the overarching Consumer Principle and the accompanying rules and guidance within this context. Although it will take time to see the effect of these proposals on the market, it is clear at this stage that firms will need to undertake a thorough review of their current approach to retail customers.
“As many of these rules come into force in only a year, firms all across the market will quickly need to get to grips with these proposals in order to meet the FCA’s implementation deadline.”
Noline Matemera, partner at UK law firm TLT said: “The original implementation deadline of nine months for the entire Consumer Duty was always going to be impossibly ambitious. I am pleased the FCA has seen sense and listened to the industry’s feedback. Even with a now extended and staggered implementation timeline, there is still much to do, particularly in light of the requirement for firms to have signed off implementation plans by October 2022. This will be quite a hurdle to overcome in a short timeframe”
“Whilst the FCA has clearly held its line on applying the Duty to firms’ past actions and closed products, undoubtedly the industry will welcome the additional guidance on fair value assessments for closed products and the further clarity on how vested contractual rights will operate. How workable the revised position will be in practice is where the real challenge will lie. Mercifully, implementation of the Duty for these closed books has been pushed back to July 2024.”
Lynn Dunne, Partner and Head of Contentious Financial Services Group at Ashurst: “The new Consumer Duty takes the FCA’s consumer protection agenda to a whole new level, requiring the delivery of good outcomes, fair value, avoidance of any foreseeable harm and a duty of good faith in favour of all retail customers. It also introduces a specific conduct rule for individuals to reflect those standards.
“We expect that the FCA will be looking closely at how firms implement these new requirements and the risk of enforcement action looms large for those that fall short, although we expect there may be some initial leeway as firms adapt to the new regime.”
Alastair Black, Head of Industry Change at abrdn, said: “The FCA’s confirmed policy is clear, and should give adviser firms renewed confidence that compliance won’t mean a radical overhaul of their systems and procedures. After all, client suitability is all about good customer outcomes.
“That said, they will still need to act, and taking prompt action now to review the rules against existing systems and processes will pay dividends in understanding what is needed
“The policy calls out the importance of taking this seriously at board or equivalent management committee level. And to back that up requires a plan for implementation to be approved by the board by end October.
“That’s not long. But this does not require everything to be worked out and implemented. It is looking for firms to be clear on what they need to do and how they will get this done by end July 2023. Some will benefit from additional support when formulating these plans – something that the right partner, like a platform or compliance service provider, can help with.”
Caroline Rainbird, FSCS’s Chief Executive, said: “FSCS has long supported the need for introducing a new consumer duty as part of the drive to improve consumer outcomes in financial services. Preventing consumer harm within the financial services sector is a key priority for the regulatory bodies, not only because of the current economic difficulties many consumers are facing but also to arrest the legacy of harm, from bad actors in the financial system, that is still coming to the surface. The FCA’s Consumer Duty is a clear step in the right direction and an example of that priority being taken seriously.
“It is now important that the requirements are embedded effectively and efficiently, and the higher standards must be implemented across the sector to help drive out those that are not living up to them.
“At FSCS, we are playing our part by using our data to support regulatory action, and to expose bad practices by rogue firms within the financial services sector. Those malpractices tarnish other practitioners and leave financial scars on the people that come to those firms in good faith.”
Stuart Wilson, CEO of Air, said: “While there is no doubt that having the final rules in place is a great relief for many, yesterday’s announcement is likely to have caused mixed feelings amongst the financial services community.
“An additional three months to introduce the rules in 2023 for new and existing open products is likely to be welcomed but for those who have as yet not started to fully consider the implications to their business, the October 2022 deadline for a detailed implementation plan will be daunting. It is also worth noting that manufacturers will need to have completed their reviews of new and open products by April 23 in order to provide distributors, such as intermediaries, with the information they need to implement the changes by July 23.
“Given the demographic that we serve in the later life lending market, we are acutely aware of the need to deliver good outcomes to retail customers and well versed on the topic of vulnerability. While there is obviously a huge amount of work to be done, to ensure that firms have the systems and processes in place to deliver against the Consumer Duty objectives, there is likely to be significant support available.
“Lenders, platforms and networks will have been able to put more resources behind considering the implications of these changes than many intermediaries and are likely to be eager to share their views. There is no denying that this is a big change for the industry but one that I believe we can leverage to ultimately improve customer outcomes.”
