Regulation  

Dos and don'ts when complying with consumer duty

Dos and don'ts when complying with consumer duty
 

The Financial Conduct Authority (FCA) has published guidance setting out which processes advisers must put in place to comply with the new consumer duty.

The regulator published its 121-page document, Guidance for firms on the consumer duty, alongside its new consumer duty today (July 27) which is to be implemented from July 31, 2023.

The document provides non-handbook guidance designed to help advisers understand the FCA's expectations of the standard of care firms should give to customers in retail financial markets. 

The regulator said: “It sets expectations that can apply flexibly and dynamically to new products, services and business models as they continue to emerge and develop in a changing and increasingly digital environment. 

“So, it better protects consumers from current and new/emerging drivers of harm, and gives firms more certainty of our expectations to support innovation, competition and new ways of serving customers.”

In its guidance the regulator provided a number of examples of good consumer support, communication channels, vulnerable customers and unreasonable barriers. 

Information on a timely basis

Product and service features can change over time such as when introductory rates come to an end or variations are made to contracts. 

Customers’ circumstances can also change over time and both factors can result in products and services that no longer meet their needs and objectives

When assessing this, the FCA considers it to be good practice for firms to be mindful of this and communicate at appropriate points. This is particularly important for longer-term contracts where there is greater scope for circumstances to change

The FCA’s example in the guidance refers to its first tranche of rules and guidance following the retirement outcomes review.

This introduced additional trigger points for firms to send pension ‘wake-up’ packs. 

“At age 50, customers are sent a summary document that includes key information such as pot size and generic risk warnings. This is followed by a full ‘wake-up’ pack at age 55 and every subsequent five years, which sets out the different options available when accessing pension savings.

“These changes are intended to give customers timely, relevant and adequate information about their retirement options to enable them to make an informed decision. This type of approach is consistent with the aims of this outcome.”

The FCA said by providing relevant information at appropriate points during the product lifecycle, it gives customers the opportunity to assess their options in good time.

Exit fees and charges

The support firms provide should not lead to the product costing more than customers expected up-front, the FCA said.

Firms should avoid causing harm to customers by making sure their consumer support does not impose unreasonable additional costs, including unreasonable exit fees or other charges, delays, distress or inconvenience.

The City watchdog acknowledged that product terms and conditions can include contractual provisions relating to early termination – but firms should not impose unreasonable exit fees.

"In general, an exit fee is more likely to be reasonable if it is commensurate with the costs incurred by the firm due to the customer terminating the agreement early," the FCA said.