The Financial Conduct Authority's consumer duty represents one of the largest pieces of regulatory reform in the retail sector for more than a decade.
The regulator’s policy statement, published last month, introduces a higher level of consumer protection across retail financial markets. The implementation deadline for most of the final rules is only a year away, with the FCA expecting firms to carry out all implementation planning by the end of October this year.
Embedding the consumer duty will clearly mean major changes in the way that firms interact with their retail customers, but given the scale of the impact across the firm, it can be challenging to break down the impact in a practical way.
For this reason, in this article we have considered two of the key – though certainly not the only – structural and process changes for retail investment advisory firms, which are mission critical to ensuring compliance with the consumer duty by this time next year.
What impact will the duty have on retail investment advisers at a high level?
The FCA’s own estimate is that one-off implementation costs for the sector could be as high as £2.4bn.
Although the FCA expected firms to start their implementation plans on the basis of its previous consultation paper (as published in December 2021), the certainty provided by these final rules mean that that there is no excuse for firms not ramping up their preparations.
All firms subject to the consumer duty must act to deliver good outcomes to customers and comply with the cross-cutting rules.
Firms providing financial advice will have a crucial role to help avoid causing foreseeable harm and ensure that their final products and associated support will help customers realise their financial objectives.
Firms must consider how they meet the consumer duty in the design and delivery of their initial and ongoing advisory services. Some firms may have more obligations than others to meet the consumer duty.
A comparison used by the FCA is the financial adviser providing holistic financial advice and wealth management on an ongoing basis who has a more wide-ranging relationship with customers, and therefore more obligations under the consumer duty than a firm providing a simple current account that has no non-essential add-ons.
What services are in scope?
Firms providing investment advice to retail customers are at the sharp end. For retail advisory firms, almost all aspects of the firm’s business with retail customers will need to be re-examined so as to comply with the consumer duty. All aspects of the customer journey will be impacted.
However, there are also likely to be fundamental organisational challenges for firms, as the FCA’s proposals include a number of requirements relating to how firms approve new products and review their existing products and services.
In addition to this, firms will need to ensure that their management body is provided with sufficient information to be able to attest that the firm is compliant with the consumer duty as a whole.