On Friday I jumped on a Zoom with a colleague (how post-pandemic of me) and she was wearing a jumper that said ‘Never off duty’, to which I made a joke and asked if I could wear it to our next Apricity Consumer Duty event. This was shortly followed by some forced compliance chuckles. But it got me thinking…
In the regulatory space, we are used to new ‘rules’ being introduced which advisers are expected to implement at X date, and be done with it. Consumer Duty is a little bit different. Consumer Duty is being seen as the natural next step to Treating Customers Fairly (TCF) and whilst there are some regulatory requirements that need to be met, it is more about how an advisory firm is run and the duty we hold to the consumers of our services. Hence, the need to never be off duty.
Consumer Duty is being labelled as ‘the biggest overhaul of regulatory approach since RDR’. Nine years on, where are we? The consultation for consumer duty is due to close next week with the final rules needing to be implemented in April 2023. The focus of this regulation is to ensure consumers are being given enough information to make informed decisions about the products and services they are accessing. Consumer Duty focuses straight into the culture of firms, encouraging consumers (customers, clients) to be right at the centre of every decision.
Sound familiar? Good! As with a lot of regulatory updates, a lot of advice firms are already practising the fundamental underpinnings of Consumer Duty, so the work needed to get ready for April 2023 is not as overwhelming as initially considered.
The regulator has come out with three ‘cross-cutting’ rules, which addresses how businesses should conduct themselves in order to ensure they are delivering the correct outcome for their clients. These are;
- Act in good faith.
- Take all reasonable steps to avoid foreseeable harm to consumers.
- Take all reasonable steps to enable consumers to pursue their financial objectives.
The FCA explicitly states that each of these is essential to the level of care firms should provide to consumers, so all need to be taken into account.
In terms of the ‘outcomes’ these relate to;
- Product and services – providers must be clear of their target market, any risks posed by their products, and also be clear on product information. Distributors must do the same, and take steps to prevent the wrong consumer types from buying/receiving those products.
- Price and value – firms need to consider the impact of charges or price over the lifetime of the product or service and check that the benefits to the consumer are proportionate. This does not mean the imposition of price caps though. In essence, here we are suggesting that firms are clear about whether there is added value by the firm being involved in the distribution of this product or service.
- Consumer understanding – firms should communicate in a way that is reasonably likely to be understood, facilitate decision making and take proportionate steps to review and adapt communications to adhere to the above.
- Customer support – customer services must not unduly hinder consumers from acting in their own interests or lead to unreasonable additional costs for consumers including time cost.
As you can see, the above outcomes and cross-cutting rules go ‘above’ just compliance with a new set of rules, they are changing the way firms undertake the advice journey and look to change their focus to ensuring the consumer is at the heart of every single decision they make. This change is, hoping, to ensure outcomes are always protected and hopefully increase consumer confidence when accessing financial services.
The FCA is welcoming responses to their consultation CP21/13 until Wednesday (15th Feb), and we expect to see final rules published over the summer of this year, with expectations for these to be implemented April 2023. We would urge firms, if they haven’t already, to start considering Consumer Duty, and remember “never off duty with Consumer Duty!’