Compliance Consultant, Tony Catt, gets down to the detail as he summarises what the Regulator’s new Consumer Duty Rules involve. He also shares his views on what actions financial advice firms need to take now in order to avoid falling foul of the new rules, which firms are expected to practise from October.
Back in the June edition of IFA Magazine, I summarised what changes were on the horizon for the financial advice profession as we prepared for the new Consumer Duty rules being brought in by the FCA.
Subsequently, on 27th July ,the Financial Conduct Authority (FCA) produced Policy Statement PS22/9 and Final non-Handbook Guidance for firms on the Consumer Duty FG22/5. These documents are very long and detailed and set out the datelines for which the Consumer Duty regime will be brought in next year.
Firms will need to apply the Duty to new and existing products and services that are open to sale (or renewal) from 31 July 2023. The FCA has given firms longer, until 31 July 2024, to apply the Duty to products and services held in closed books.
Beware enforcement action
But firms are expected to be in position to practise the Consumer Duty from 31st October 2022.
I understand that the FCA will be looking to enforce against firms that cannot evidence their readiness for the new regime. This seems unlikely to be operable, as the regime is not going to be regulation until July next year and also the FCA is unlikely to have the resource to enforce, even if it felt so obliged. But I understand that there is significant recruitment being undertaken and new offices for the FCA in Edinburgh.
Over the years, there have been a series of regulations and FCA guidance such as:
- Treating Customers Fairly
- Retail Distribution Review
- Markets in Financial Instruments Directive I & II
- Financial Advice Market Review
- Senior Management & Certification Regime And now, the latest in the stable are the new Consumer Duty rules.
The FCA is introducing rules comprising:
- A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers.
- Cross-cutting rules providing greater clarity on the Regulator’s expectations under the new Principle and helping firms interpret the four outcomes (see below).
The cross-cutting rules require firms to:
- act in good faith
- avoid causing foreseeable harm
- enable and support retail customers to pursue their financial objectives
- Rules relating to four outcomes which the FCA wants to see under the Duty. These represent key elements of the firm-consumer relationship which are instrumental in helping to drive good outcomes for customers. These outcomes relate to:
- products and services
- price and value
- consumer understanding
- consumer support
The FCA rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.
The Duty supports each of these outcomes:
- fair value: consumers receive fair prices and quality
- suitability and treatment: consumers receive suitable products and services and receive good treatment
- confidence: consumers have strong confidence and levels of participation in markets
- access: diverse consumer needs are met