Consumer duty: ‘Vitally important firms are pulling in same direction’

Speaking to Ozge Ibrahim on the latest episode of the Inside FCA podcast, Ed Smith, FCA’s head of competition policy, said the regulator expects manufacturers to complete and share their product and services reviews by April 30, 2023 and outlined what should happen in the case of any disagreements within the distribution chain. 

He said: “Our work is showing that actually it’s vitally important that all the firms along that chain are pulling in the same direction in order to produce good outcomes for consumers. 

“We've seen that in a number of different markets that we worked in where it's vitally important that distributors understand the product, understand the product that they're selling, and are targeting that product at the right consumer.”

Smith said the regulator has applied the consumer duty right across the distribution chain, so that all firms that have a material influence are covered by the duty. 

“What we want to see here is that firms are working together with that shared goal of delivering good consumer outcomes,” he said. 

“So, thinking kind of end-to-end across the distribution chain, understanding who does what, understanding what relevant information is to ensure the chain works effectively and delivers for the end customer.”

Smith explained that whether a firm is a manufacturer or a distributor or both, the FCA has put out guidance to help with what the functions are between a manufacturer and a distributor. 

30 April deadline

When the duty comes into force in July, all parts of that distribution chain need to be in compliance. 

However, there are things that manufacturers will need to do first as part of ensuring that compliance, Smith explained.

For example, they need to review the products and services that they create to make sure they meet the needs of an identified target market and ensure the benefits of those products and services are reasonable relative to their costs so that they provide fair value to customers. 

“Manufacturers need to undertake that assessment first and then they need to share that relevant information to the distributors in their supply chain,” he said. 

“So that they can make sure they are aligned in understanding, for example, a target market - so who they should be marketing these products to - so that the right consumers get the right products.”

Smith said there also needs to be enough time for manufacturers to, if they need to, make changes to ensure compliance with the duty for some of their products potentially or some of their marketing literature to make sure that they’re fair value. 

“We need that time. So, after they've assessed the products, they need to make any changes before the July deadline, that leaves them a little bit of wiggle room to do that.”

The City watchdog said it hasn’t specified particular formats for the information manufacturers share and this will be up to firms themselves to devise what information they need to supply and the form that it needs to be supplied in. 

"But we have seen a number of firms and trade associations use common templates for the provision of information between parties, and trade associations have actually played a really helpful role here," Smith said. 

“It's up to the firms themselves to ensure that they remain focused on the consumer outcomes and that the process that they use is flexible enough to allow all the relevant information to be shared. But it may be that firms find templates useful in those circumstances.”

He explained that it is not for distributors or manufacturers to necessarily challenge the work that other parts of the supply chain have done and argued that firms need to concentrate on their own assessments in the first place.

"Having said that, obviously, if there's something that they know to be wrong in the manufacture assessment or distribution assessments, then they should challenge that," he said. 

"There are two main messages. One is the end of April deadline is for manufacturers to pass information on to distributors. We want manufacturers to really comply with that because that's important for meeting the July deadline. 

"The second bit is overall good cooperation between firms in the distribution chain is really important for making a success of the duty because making sure that those good consumer outcomes and assessments are passed down to distributors so that the overall end product to consumers overall is fair value, is a product that's well targeted meets the needs of the consumer, that's really important.

"Getting that cooperation in the distribution chain is really vital to those end consumer outcomes."

sonia.rach@ft.com

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