There will be some "trial and error" as advisers get to grips with what fair value means under new consumer duty regulations which come into force next week.
After a year of preparations advisers will have to comply with new consumer duty regulations from Monday (July 31).
But there will be some “trial and error” when it is first rolled out as advisers understand just what fair value means, says the chairman of a data intelligence firm.
Mike Ward from Armalytix said: “It is a really interesting development but it is going to be hard because it is about providing a better outcome, so we’ve got to make sure we know what a better outcome is.”
Ward added that the hardest part of the new regulations was the subjective nature of what fair value, one aspect of consumer duty, means.
He added: “Advisers have always had the obligation to provide fair value but it will now be turbo charged.
“I think fair value has been the one piece that has probably been the most problematic, there is much debate on what it means - it is an interesting one.
"This isn’t all going to change on August 1, it will take a bit of time for people to understand.
“I think with every major change I don’t think I’ve ever see that it goes live and everyone gets it right straight way. You can’t help feeling that in all areas there is going to be some trial and error. I hope that the regulator will understand that.”
Ward anticipated that some of the software offered by Armalytix will become more useful to advisers to speed up financial checks on customers.
Regulatory milestone
Chris Woolard, UK financial services regulation leader at EY, said the consumer duty deadline was one of the “most significant regulatory milestones in the last decade for UK financial services firms”.
He added he expects the industry to be largely compliant as a result of the hard work firms had been undertaking over the past year.
Woolard said: “However, in many ways, this is still just the beginning. The duty must now shift from being an intensive programme for firms, to being embedded in business-as-usual operations and organisational culture.
"Data and technology will play a key role going forward, enabling firms to fully embrace the required changes and has the potential to bring competitive advantages if used effectively.”
While Alastair Black, head of savings policy at Abrdn, called the deadline just the beginning for firms and said regular meetings to check compliance would be a good idea.
He said: “Importantly the FCA is not trying to catch advisers out. The purpose of this legislation is about trying to make client propositions even better and raise standards across the financial services sector – something that will only be good news for clients and advisers alike.”
Paul Glynn, CEO of Air Group, warned against seeing consumer duty as a box ticking exercise.
He added: “Having watched the clock slowly tick down until July 31, the next few months are arguably even more important as they will determine whether the extraordinary effort from the sector to ensure compliance with the new consumer duty has been successful.”
The Financial Conduct Authority (FCA) said the new regulations will seat higher standards for consumer protection across the financial services industry.
The rules will be rolled out to cover closed products and services on July 31, 2024.
tara.o'connor@ft.com
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