Keith Richards: Five things to know about the Consumer Duty Alliance

At an event today (March 9) he unveiled the new body known as the Consumer Duty Alliance (CDA), which came about following the introduction in July 2022 of the Financial Conduct Authority’s final rules on consumer duty.

Richards says: “The FVT board recognises that the financial services sector would from this point on consider vulnerability within the wider context of the duty, and that the FVT would be better able to support the sector and meet its founding objectives by doing the same.

We will be sign-posting members to trade bodies such as Pimfa, Biba and IA etc, as well as professional bodies.Keith Richards

“At the same time, the board felt that the FCA’s position that the successful implementation of consumer duty could lead to a potentially less prescriptive and more flexible regulatory framework opened up the opportunity for an independent, non-commercial body to engage and influence any framework development for the good of both the consumer and sector.”

Vulnerability

The CDA aims to help advisers improve their understanding of vulnerability and how consumer duty is going to shape their approach to vulnerability.

As Richards explains, clients can either have identifiable vulnerability or face vulnerable circumstances that might be permanent or temporary that the consumer duty encompasses. In principle, most clients have vulnerable circumstances even if it is as straightforward as inexperience or lack of knowledge.

In practical terms consumer duty has upgraded the existing guidance on vulnerability by requiring firms to be active rather than reactive in identifying vulnerability, to understand vulnerability at both an individual level and firm level and to be able to record and audit over time.

The FCA's existing guidance on vulnerability will still apply and where the consumer duty rules specifically reference customers with characteristics of vulnerability, they do so in a way that is consistent with their existing guidance on vulnerability.

Following the FCA's final guidance for firms on the fair treatment of vulnerable customers, which was published in 2021, the final non-handbook guidance for firms on the consumer duty, published last year, brings much of the former guidance into a world of regulatory enforcement.

In the handbook, the FCA says: “We expect consumers with characteristics of vulnerability to benefit from the overall improvements in outcomes delivered as a result of the new duty."

Richards says: "Put simply, as consumer duty requires firms to support their clients over the lifetime of a product or service, they need to be aware of whether any developing vulnerabilities or circumstances impact on the consumers ability to continue to benefit from a policy of service."

So firms will need to think about how they audit this over time, probably by building questions and identification of vulnerability into things like annual reviews. 

The duty rules also made it very clear that firms can expect to be asked to demonstrate how their business model, the actions they have taken, and their culture ensure the fair treatment of all customers, including those in vulnerable circumstances.

The duty rules make it very clear that firms can expect to be asked to demonstrate how their business model, their actions and their culture ensure the fair treatment of all customers.Keith Richards

To further emphasise the importance of this area, the regulator has stressed that firms should be aware that the way they supervise the treatment of vulnerable consumers will be integrated into their supervision and this is not a one-off supervisory exercise.

Furthermore, the regulator expects consumers with characteristics of vulnerability to benefit from the overall improvements in outcomes they expect to be delivered as a result of the new duty. The regulator has also used the duty rules to remind us that all customers are at risk of becoming vulnerable.

Richards adds: "As in its previous papers on vulnerability, the regulator reinforces the importance of embedding the fair treatment of those customers in vulnerable circumstances within a firm, and that all relevant staff should understand how their role affects their fair treatment.

“The duty rules make it very clear that firms can expect to be asked to demonstrate how their business model, the actions they have taken, and their culture ensure the fair treatment of all customers, including those in vulnerable circumstances."

No conflict with CII/PFS

The alliance, as Richards explains, is not intended to be a rival to the PFS or Pimfa.

He says the CDA is neither a trade body nor a commercial professional body or a subsidiary of another commercial organisation.

"Indeed, we will be sign-posting members to trade bodies such as Pimfa, Biba and IA etc, as well as professional bodies like the PFS, CISI and LIBF," he adds.

Regulated financial advice is all about delivering good outcomes. To that extent the consumer duty is nothing new.Keith Richards

“To date we have been focused on launching the alliance and placing it on a secure financial footing. We have only engaged a limited number of firms and organisations pre-launch and will seek to engage more, including PFS/CII over the coming weeks.

“However, we were also sensitive to the current issues between the CII/PFS boards and felt that we should logically await the outcome of their member consultation before inviting them to join the alliance. Both the CII and PFS are of course listed bodies on our website.”

Objectives

The CDA will focus on the issue of vulnerability in the wider context of consumer duty.

As an independent, non-commercial body, Richards says the CDA will seek to differentiate itself by delivering:

• A network for good practice and support in respect of good consumer outcomes.
• An independent voice for the personal finance sector.
• Consumer recognition of an independent code of professional standards aligned to consumer duty.
• Signposting to appropriate organisations, support services, networks and qualification bodies.
• A basis for collaboration across professional services.
• Focused forums involving subject matter experts.
• Detailed good practice guides in respect of key aspects of both consumer duty and drivers of vulnerability.

Richards adds: "Regulated financial advice is all about delivering good outcomes. To that extent the consumer duty is nothing new. What is new is an explicit requirement to robustly evidence this outcome during the whole consumer journey."

The CDA will continue to focus on the issue of vulnerability but in the wider context of consumer duty where it now sits.

Alliance structure

There are three main strands to the alliance.

The first is the financial planning forum, which will be chaired by Nick Cann, former chief executive of the Institute of Financial Planning.

It will consist of invited practitioners to help create thought leadership, good practice guides and financial planning methodologies supporting the wider development and evolution of financial panning as a practice, aligned to firms' consumer duty objectives, including approaches to vulnerability.

The second is the tech forum, which will explore how technology can help firms to meet consumer duty requirements, for example evidencing the delivery of good client outcomes. 

Richards says: “The consumer duty guidance comes with a significant requirement for evidence and many firms are reviewing their data-driven technology solutions as a result. 

The aim of the forum is to support this role through exposure to new and shared ideas from other ‘champions’.Keith Richards

“The forum, under the chair of Ian McKenna of the Financial Technology Research Centre, is about exploring how technology can both evidence and support good client outcomes as well as the broader objectives of the duty, increasing access to advice and what’s available to firms right now.”

The third strand is the champions forum. The genesis of this forum came from conversations with Johnny Timpson, protection specialist and industry veteran, about providing an opportunity for consumer duty champions to discuss key issues and challenges around the implementation of consumer duty. 

Richards explains: “These champions are independent non-executive directors of firms whose role as far as the regulator is concerned is to ensure that consumer duty remains prominent at board level discussions, and to challenge a firm’s governing body/management on how it is embedding the duty and focusing on consumer outcomes. 

“The aim of the forum is to support this role through exposure to new and shared ideas from other ‘champions’ as well as best practice across the sector. Participation will be open to consumer duty champions, compliance directors and other appropriate CDA members.”

Membership 

CDA is a free to join membership body open to regulated firms and all individuals working in the personal finance sector. 

Richards says: "It’s not our intention to charge a fee for membership. All need to adopt an independent code of professional standing, consumer guide and financial vulnerability charter. Adoption can help firms and individuals by referencing as a segue to introducing their professional services and commitment their client duty.

“Larger organisations, be they other professional bodies, trade associations or corporations, are also free to join as affiliate members as long as they are commitment to share and develop good practice across the sector.”

Initial funding of CDA has come from its foundation affiliates.

Richards says that as the organisation grows it will remain open to having funding discussions with any organisation that is able to support any unfunded objectives going forward. 

“For example, if the alliance continues to invoke the positive responses we have had to date and starts to realise its potential, it would make sense to create some initial employment opportunities within the operational structure of the alliance to enable it to grow at pace,” Richards adds.

“As for events, as a board we are not looking to reinvent the wheel and will look to promote and signpost events being run across the sector, with an initial focus on those being run by our affiliate membership.”

Ima Jackson-Obot is deputy features editor of FTAdviser