This is essential reading for all senior managers as the paper not only gives feedback to CP 21/13 (the paper that first introduced us to the Consumer Duty), but also sets out the draft rules and guidance to help provide examples of behaviour that would, or would not, satisfy the Consumer Duty. The paper also asks for further feedback on a further 11 questions before the 15 February.
The FCA intends to set out higher standards (which are outcomes focused) in new rules informed by their experience of intervening in markets and using the data they have about customers. This article will take you through some of the key highlights of the paper.
Consumer Duty Elements
The latest paper sets out that the initially proposed three elements of the Consumer Duty will not change. These will be:
- The Consumer Principle: after consultation this will be ‘A firm must act to deliver good outcomes for retail clients’
- The Cross-cutting rules
- The four outcomes
There are a number of proposals for product manufacturers including:
- The need to develop an approval process for products or services
- Consider if there are any consumers with characteristics of vulnerability in the target market and take account of any additional or different needs of these consumers
The proposed requirements for product distributors include the need to:
- Develop distribution arrangements for each product or service distributed
- Get information from the manufacturer to understand the product or service, its target market and its intended distribution strategy
- Regularly review the distribution arrangements to ensure that they are appropriate and, if they identify issues, take appropriate action.
Private Right of Action
The FCA are not proposing to provide a Private Right Of Action (PROA) for breaches of any part of the Consumer Duty at the present time. While the benefits of this are discussed in the paper, the FCA say they expect firms to fully embed the Consumer Duty into their own practice culture and will keep the option of introducing a PROA under review.
The FCA state that firms should have until 30 April 2023 to fully implement the Consumer Duty.
Under Consumer Duty the FCA would expect firms to:
- Monitor and review the outcomes that their clients are experiencing
- Ensure products and services they are providing are delivering the outcomes expected
- Identify where they are leading to poor outcomes or harm to the consumer
By monitoring consumer outcomes, the FCA would expect firms to:
- Identify and manage any risks to good outcomes for consumers
- Identify where consumers are getting poor outcomes and understand the root cause
- Have processes in place to adapt and change products/services or policies/practices to address any risks or issues as appropriate
- Be able to evidence how the firm has identified and addressed issues leading to poor outcomes
The FCA would expect a firm’s management to produce and consider a report, at least annually, assessing whether it is acting to deliver good outcomes for its clients which are consistent with the Consumer Duty, this would include:
- The results of any monitoring that the firm has undertaken to assess whether their products and services are delivering the outcomes that they expected
- Are there any new or emerging risks to good outcomes for consumers?
- Is there any evidence of consumers not achieving good outcomes and an evaluation of the root causes of this?
- Is there any evidence of consumers who have characteristics of vulnerability and are not achieving good outcomes?
The FCA also propose to amend the individual conduct rules to reflect the higher standard of the Consumer Duty requiring all staff subject to the conduct rules to 'act to deliver good outcomes for retail clients.'
There is certainly a lot more detail on what the FCA expectations are from introducing a new Consumer Duty in this paper. Many will see this as an aggressive extension of TCF principles and further evidence that the FCA is looking closely at a firm’s culture. The matter of Consumer Duty is likely to dominate industry attention for the foreseeable future.