'Clock is ticking' on consumer duty, FCA says

Sheldon Mills, executive director of consumers and competition for the FCA, said as the one-year anniversary of the duty's implementation approaches, the watchdog has "identified there is still much room for improvement".

He said firms should not "wait to see if we will intervene to address an issue" but to "get serious about their data and not assume they can just re-package existing information".

Speaking today (February 20), Mills said: "We want to see the duty embedded across every firm at every level, with leadership from boards."

He specifically highlighted two issues as areas for concern: price and value, and closed products - an area where the FCA gave companies an additional 12 months to get their processes in order. 

The equivalent of a Google Shopping search does not prove to us that a customer is getting a fair deal.Sheldon Mills, FCA

In terms of closed products, Mills said: "We know many firms have applied their laser focus on open book products ahead of the consumer duty coming into force.  

"But the clock is also ticking for closed products which will come under the scope of the consumer duty at the end of July." 

Under the consumer duty, closed products are ones that were sold before the 31st of July 2023, but have not been marketed or sold to new customers since. 

The FCA gave firms an extra year to get to grips with the complexity of older systems and the increased work involved.  

Mills acknowledged: "There may be gaps in the data you hold from legacy systems. We know you may not have every answer.

"But you need to have a plan for how you will produce one, and how your firm will evidence that it is delivering good outcomes for customers who hold closed products."

Fair price and value

But he admitted the "most challenging outcome of the consumer duty" for firms to meet was that of fair price and value. 

Reiterating an old mantra - "We do not set prices: Our job is to make sure that markets can work well", he added that markets cannot work well if products and services fail to offer fair value, or if they offer features that lead to foreseeable harm. 

On a positive note, the FCA reported that 37 per cent of advice firms have reviewed or changed their fees structure since the consumer duty was introduced. 

However, Mills added: "Many of the fair value assessments we have seen are not relying on solid data and other credible evidence to justify the products’ value to retail customers."

For example, some firms have relied solely on benchmarking against the market when considering their pricing, rather than considering a fuller range including the real value that a consumer derives compared to the price they pay.

Mills commented: "The equivalent of a Google Shopping search does not prove to us that a customer is getting a fair deal." 

We want to see firms considering all the aspects of fair value at the product level and considering the impact on different consumers. 

Board reports will come under greater scrutiny as we look to these to evidence the steps firms are taking to drive good outcomes.  

Main challenges 

From the end of July, the requirements of the duty will apply to closed products as they do to open products. 

The FCA said the main challenges firms have identified around closed products include: 

• Being able to evidence you’re delivering good outcomes for consumers, and addressing gaps in the customer data you hold. 
• Determining fair value on closed products. 
• Taking action relating to less engaged and the ‘gone away’ customers, including the support offered and how you assess whether these customers understand the products they hold. 
• Ensuring that the design of your products and services deliver good consumer outcomes over the long haul, even where your firm has vested rights. 

Another challenge he identified was vested rights, which could include annual fees that are due or exit charges on products such as life insurance policies. 

simoney.kyriakou@ft.com