The regulation of retail financial services in the UK has been on an evolutionary journey.
July 2006 saw the introduction of the notion of “fairness” and the associated concept of “treating customers fairly” in the then Financial Services Authority’s publication, 'Treating Customers fairly – towards fair outcomes for consumers'.
Through a series of small incremental changes, the next significant development was the publication in February 2021 of finalised guidance on the fair treatment of vulnerable customers.
Now the retail financial services sector awaits the Financial Conduct Authority’s policy statement and final rules on the new consumer duty expected at the end of this month.
The consumer duty, which has been the subject of two consultations – CP21/13 and CP21/36 – is expected to raise the standard of care given to consumers of retail financial services.
Exploitation of information asymmetries, behavioural biases, distribution of products and services that offer poor value, or simply not providing appropriate information to consumers to pursue their financial objectives are some of the ills the consumer duty is expected to remedy.
While the desired benefits or intended objectives are undisputed, the real question for advisory firms is the extent to which the consumer duty introduces new and novel concepts, particularly in light of how the regulation of retail financial services has developed and evolved over the years.
Most of the language and terminology will not be new to the sector.
The question adviser firms are seeking to answer is whether the new consumer duty is simply a rehash of the existing regulatory frame or if it is new and different and therefore meriting further engagement.
Considered below are three aspects of the consumer duty that highlight some of the key changes it will introduce for adviser firms.
The sharp end of the distribution chain
Advisers are in a unique position as their regulated activities bring them in direct contact with consumers.
This differs from fund managers or platform providers who may or may not interact with consumers on an ongoing basis.
As a result, advisory firms will have the clearest oversight of a customer’s overall position.
As part of the product and services outcome, an adviser will have an important role in accessing information necessary for supporting determinations of the relevant target market or consumers’ reasonable expectations.
This will be required for its own advice proposition and, potentially, other parties in the distribution chain as well.
While target market obligations sit most heavily on a product provider as a manufacturer, an adviser’s holistic knowledge of a customer base will be an important source of information for target market assessments.
