Over the last few months, those within the regulated financial services sector have seen lots of changes to the regulatory landscape. One of the most fundamental of these is the Consumer Duty. Since 2021, when the Financial Conduct Authority (“FCA”) launched its initial consultation on the introduction of a new Consumer Duty, firms have been preparing for this shift which comes into force on 31st of July 2023.
The Consumer Duty requires firms to put their consumers’ needs first and produce communications that consumers can understand, provide fair-value products and services that meet consumer needs and provide consumer support when they need it.
The Consumer Duty will introduce:
- A new Consumer Principle which will become Principle 12 of the Principle’s for Businesses.
- Cross-cutting rules which will require firms to act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives, and;
- Four Outcomes which ensure consumers receive clear communications, products and services meet their needs and offer fair value and the customer support they need.
By introducing the Consumer Duty, the FCA want to raise the standards of consumer protection and trust after a Financial Lives survey conducted in 2020 by the regulator found that just 10% of consumers ‘strongly agreed’ that they had confidence in the UK financial services industry.
The FCA want to ensure that firms prioritise good customer outcomes and benefit from the products and services they receive.
Under these new rules, the Consumer Duty will mean firms must focus on getting consumer outcomes right in the first place. This means that firms must always put good consumer outcomes at the heart of their business.
Consumer Duty Principle
This new principle 12 means;
“A firm must act to deliver good outcomes for retail customers.”
Under this new Principle, firms will need to assess and evidence how they are acting to deliver good outcomes for their retail customers throughout the lifecycle of the products and services they provide to them.
The Cross-Cutting Rules
There are three Cross-Cutting Rules, which are:
- Firms must act in good faith towards retail customers
- Firms must avoid foreseeable harm to retail customers
- Firms must enable and support retail customers to pursue their financial objectives
The Four Outcomes
The Four Outcomes consist of rules and guidance that set out detailed expectations for firm conduct in four particular areas.
Products and Services
Firms must ensure that their products and services are;
- Designed to meet consumer needs
- Perform as they should
- Appropriate distribution
- Regular reviews
Price and value
Firms must ensure that their offer;
- Fair value
- Regular price/value assessments completed
Consumer Understanding
Firms must ensure that communication with consumers is;
- Clear and transparent
- That the right information at the right time
- Is appropriate for the average customer
- And that firms consider potential vulnerabilities
Consumer Support
Firms must ensure that the support their provide to their customers is;
- Flexible approach taking customer needs into account
- Removes post-sale barriers and;
- Is responsive and accessible
What does this mean for Appointed Representatives?
Principal firms with Appointed Representative (“AR”) networks are in the process of working with their ARs to support them with their implementation of the Consumer Duty. During the next few months, ARs will see and be part of the significant work their Principal firm will undertake to support activities such as;
- Train staff on Consumer Duty requirements
- Roll out implementation plans
- Embed the new requirements in company processes, training and other materials
- Review and assess firms commission models and incentives
- Review of customer journey (including assessment of MI produced)
- Review of all communications and financial promotions (including assessment of MI produced)
- Review of pre and post-sale customer support (including assessment of MI produced)
- Product Governance process implemented for both open and closed products (including assessment of MI produced)
- Price and value assessments completed (including assessment of MI produced)
The FCA has been clear that it will take an ‘assertive’ approach to implementation of the new rules, in particular to firms’ plans on monitoring customer outcomes. With the changes that Principal/AR firms that were implemented on 8th of December 2022, many Principal’s are under pressure to ensure that their ARs are supported.
If you have any questions or require any further information about how the Consumer Duty will impact you as an Appointed Representative, get in touch to discuss how we are supporting our Network.
