The final policy statement for the Financial Conduct Authority’s new consumer duty should be published at the end of July.
Assuming there are no significant changes from the second consultation paper, published in December last year, regulated firms have until the end of April 2023 to implement any necessary improvements to their current practices, and make sure that they are complying with the regulations.
How long firms will need to address any issues will inevitably depend on their circumstances and line of business.
Those that have been subject to greater regulatory scrutiny in recent years will understandably have less to do, as they will already be in fairly good shape.
Given the need to provide clear evidence that they are compliant, it is vital that firms are working now to identify the areas where they are falling short, otherwise they risk running out of time to address their shortcomings.
The consultation paper has spelled out some of the changes the FCA wants to make and given firms a chance to get to grips with what the effects on them will be.
Ultimately with the consumer duty the FCA wants firms to improve their practices and serve their customers better.
For advisers this means showing the regulator that they understand the products they sell and the people that buy them.
Consumer duty explained
The consumer duty is designed to “set clearer and higher expectations for firms’ standards of care towards consumers”.
It brings together four outcomes, three cross-cutting rules, and one consumer principle.
Although much of it continues on from previous consumer-focused regulatory initiatives, the new duty gives the regulator more ‘teeth’ to ensure compliance, which is why firms need to get this right from the off.
The duty is predominantly focused on ensuring good consumer outcomes, and there are four outcomes that firms are required to achieve:
- Products and services: All products and services must be fit for purpose, and be designed to meet consumers’ needs.
- Price and value: All consumers must receive fair value.
- Consumer understanding: Communications must support and enable consumers to make informed decisions.
- Consumer support: Firms must provide a level of support that meets consumers’ needs throughout their relationship with the firm.
The focus areas of the consumer duty are not new areas for the regulator, but they have arguably suffered from firms not always giving them the attention that they deserve.
Where progress has been made, it has tended to be patchy and sector specific.
For instance, while consumer communications have noticeably improved in recent years, there are still too many instances of misleading information being communicated.
This can leave consumers only partially informed when making decisions.
Some firms can be found guilty of being less concerned about servicing the customers already on the books, as opposed to the prospects they are trying to get through the door in order to meet commercial objectives.
In part, the FCA is trying to address what it considers to be a lack of permanence when it comes to advances in consumer protection.
Where it is at the top of boards’ agendas there is often a flurry of activity, but when other, more recent and pressing priorities take over progress tends to slow.