All FCA Consumer Duty regulations for existing goods and services came into effect on July 31, 2023. Although businesses may feel they have spent years preparing, there is currently no time to unwind. The FCA will apply the Consumer Duty standards to all contacts with retail consumers, and businesses will be watching closely to see how their carefully thought-out initiatives stack up to the standards set by the regulators.
Reminder: what’s it all about?
A new FCA Principle, Principle 12, which compels all enterprises to “act to deliver good outcomes for retail consumers,” has been adopted as part of the Consumer Duty, which builds on long-standing regulatory principles and duties on treating customers fairly. The FCA wants to see four results related to products and services, pricing and value, customer comprehension, and consumer assistance, which are supported by cross-cutting regulations and the new Principle. Basically, considering every action businesses do that has an impact on retail consumers first and primarily from the perspective of what will happen to that customer.
Since the FCA released its final rules and advice on the Duty in July 2022, it has consistently emphasised its expectations to companies and supported the rules and guidance with a variety of letters, webinars, reviews, and checklists that are both general and sector-specific.
What should firms have done?
Businesses ought to have spent the previous year analysing how the Duty might affect them. They ought to have made sure that their boards were aware of the necessity and significance of the Duty, assigned proper duties, thought through how the Duty would apply to each of their product and service lines, and handled the distribution chain.
Each step of the customer journey, including the pre-, during, and post-sale phases, should have been put under stress testing to identify any potential obstacles that customers could encounter, regardless of the method or media they select for their trip. As always, vulnerable clients should have received special consideration.
They should make it very apparent that each company in the supply chain has a role to play and that all pertinent companies will cooperate to guarantee the desired results.
They ought to have evaluated the roles and duties of all pertinent workers, not just those working in the compliance department and with customers, and put in place training programmes and procedures to make sure everyone knows what is expected of them.
Additionally, and perhaps most importantly for the future, they should have an appropriate monitoring strategy in place, along with plans for correction if the monitoring shows that there is space for improvement.
What can we expect from FCA?
For the FCA to anticipate that every company would have completed implementation on schedule and flawlessly is absurd. We may anticipate that it will closely monitor implementation and continuing compliance, but we can also anticipate that when it does take action, it will concentrate on major violations and situations where there is a clearest indication that consumers have been harmed or are at danger of being harmed.
Firms can still utilise the material that the FCA issued in the lead-up to implementation to review their policies and ongoing compliance. While FCA begins to monitor compliance, the main questions it issued at the end of June might serve as a helpful checklist of inquiries companies could expect FCA to make. The questions focus on:
- Characteristics of products and services:
- Are they well designed to meet the needs of customers in their target markets?
- Are they designed to perform as expected?
- What testing have firms carried out?
- Do they have any features that could cause harm to vulnerable customers? If so, what changes are needed and have they been made?
- Firms should have carried out fair value assessments – what action have they taken following them?
- How are firms ensuring this action is effective in improving consumer outcomes?
- Communications and support:
- How are firms testing the effectiveness of their communications and acting on the results of the tests?
- How are firms adapting their communications to help vulnerable customers, and how are they testing the effectiveness of the adaptations?
- Have firms assessed how their customer support meets the needs of customers with vulnerability characteristics?
- How have firms satisfied themselves that their post-sale support is as good as their pre-sale support?
- Staff and training:
- Have firms ensured that all individuals throughout the firm understand their role and responsibility in delivering the Duty – including those in control and support functions?
- Risk assessment:
- Have firms identified the key risks to their ability to deliver good customer outcomes?
- Have firms put in place appropriate mitigants?
- Monitoring and MI:
- What data, MI and other intelligence are firms using to monitor fair value on an ongoing basis?
- What data, MI and customer feedback are firms using to support their assessments of the effectiveness of customer support to vulnerable customers?
The FCA’s main flagship initiative is to alter company culture. According to the findings of its most recent “Financial Lives” poll, consumer confidence in the sector is usually low, and businesses must endeavour to earn back consumers’ trust. Consumer duty programmes that are well-planned and managed can aid in this. Not every company will have everything in order from the start, which is why it’s crucial for businesses to take care in obtaining the right levels of MI and monitoring information, presented in the right way, so they can take the necessary corrective action if something isn’t quite going according to plan.
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