With fewer than 90 days to go until the start of the consumer duty, the Financial Conduct Authority has urged firms to ensure fees are fair and transparent ahead of the July 31 deadline.
In a speech given today (May 10) at an EY conference, Sheldon Mills, executive director of consumers and competition at the FCA, warned that firms who ignore the duty or who pose the most harm can expect swift action.
Mills said: “Our supervisory and enforcement approach will be proportionate to the harm – or risk of harm - to consumers, with a sharp focus on outcomes.
“We will prioritise the most serious breaches and act swiftly and assertively where we find evidence of harm or risk of harm to consumers.
“In some cases, firms can expect us to take robust action, such as interventions or investigations, along with possible disciplinary sanctions.”
The City watchdog said firms should use the time remaining in the run-up to July 31 to ensure that their fees are fair and transparent, and that particular groups of consumers are not disproportionately disadvantaged.
Mills also acknowledged the work undertaken by financial services firms to implement the duty and set out how it could boost the competitiveness of the sector.
He explained that since the FCA published its final rules and guidance last year, the financial services industry has worked with the regulator to meet Parliament’s will to implement the new consumer duty.
“The 52mn financial services consumers in the UK rely on the sector to deliver good outcomes, and should be even better protected from harm, particularly in these challenging economic times,” he said.
“The duty will help the UK financial services industry remain world-leading proponents of financial services, as firms have to think harder about innovating and competing to find better ways to serve customers.”
If applied correctly by firms, the consumer duty should help firms retain and attract customers and will enhance the competitiveness of our financial services sector,” he explained.
Mills said the duty will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the support they need.
Review of fair value frameworks
To further support firms, the FCA is sharing findings from its review of firms’ fair value assessment frameworks, which highlights good practice and areas for further consideration.
The review found that firms had carefully considered the FCA’s price and value requirements, but that some firms have more work to do to meet the rules.
It found that some firms did not seem to be properly considering outcomes for different groups of their consumers, relying instead on broad averages.
This could hide where certain types of customers – such as those on low incomes or in vulnerable circumstances - are receiving poor value – perhaps because they are unable to benefit from important product features, or are more likely to pay charges, such as late payment fees.
Some firms also did not seem to be challenging themselves enough on uncomfortable questions – such as, whether high profit margins on a specific product are a sign that those customers are not getting fair value.
“Of course, profit is not a bad thing, and it is possible to deliver both fair value and profit,” Mills said.
“We expect to see all firms taking an honest and critical approach to their fair value assessments. These are areas that will need renewed focus in the weeks ahead.”
Following the review, the FCA set out four key areas for firms to focus on which include collecting evidence that demonstrates products represent fair value and having clear oversight of actions to take if products do not provide fair value.
Firms should already be asking themselves:
- Does your purpose and culture align with your obligations under the duty and support the delivery of good outcomes for customers?
- Is the duty being considered in all relevant discussions such as strategy, remuneration and risk?
- Have you made sure your remuneration and incentive structures drive good outcomes for customers?
- Are you prioritising delivering good outcomes for customers in a changing external environment?
The FCA said these are the types of questions it will ask, and the types of questions the duty champion and chairperson should ask internally.
“The duty’s outcomes run with the grain of what good firms should seek to deliver,” Mills said.
“Those firms who do the right thing and show leadership should welcome action to tackle poor practice by competitors who drive down standards.
“The common thread, the thing we are interested in above all else in our work, is reducing harm to consumers and ensuring firms deliver good outcomes for consumers.
“And the consumer duty should deliver this, by fundamentally changing culture: not just yours, but ours too.”
Mills said the industry and the FCA will become more outcomes and data-driven – which means focusing on results over processes.
“As a regulator, the duty will provide us with a lens through which we can assess our rules so that in future, we do not duplicate regulations that are already implicit in the duty,” he said.
“This should, over time, simplify some of the complexities in our rule book.”
sonia.rach@ft.com
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