Advisers need two years to implement the Consumer Duty and there are concerns about how the Financial Ombudsman Service (FOS) will oversee the new rules, the Financial Conduct Authority (FCA) has been told.
Intermediary trade body the Personal Investment Management & Financial Advice Association (PIMFA) has raised concerns about the “inherent subjectivity” of the FCA’s new Consumer Duty and its application by the ombudsman and asked for a further fifteen months for firms to get to grips with the proposals.
Last Spring, the FCA announced plans for the new Consumer Duty which will introduce fresh demands on advisers and intermediaries to ensure they are operating in the customer’s best interests at all times.
In a follow-up consultation published in December, the FCA said it was planning to give until 30 April 2023 to fully implement the Consumer Duty, but added it was “keen to hear the views of respondents on this now that they have seen the full package”. The consultation period closes today.
In its response, PIMFA welcomed the further clarity from the regulator about the proposals, but argued there was still significant scope for subjectivity within them, adding the proposed implementation period of nine months was insufficient and did not reflect the importance the FCA has itself placed on the duty’s wider impact on financial services.
Nine months not enough
Liz Field, chief executive of PIMFA, noted the trade association has consistently asked the FCA for further clarity on the proposals that it has put forward.
“To their credit, this updated package of measures, in combination with the draft guidance produced, is clearer on the FCA’s expectations of firms,” Field said.
“However, there is still scope for further clarity, and we have asked for updated guidance on a number of issues, as well as explicit statements of the expectations of firms.
“Throughout this process we have been clear our concerns around the Consumer Duty are less about the ability of firms to comply with it on an ongoing basis and more about the broader implementation challenge associated with, and the inherent subjectivity of, the proposals.”
Field emphasised the industry has undergone an enormous amount of regulatory change recently which, in combination with the ongoing impact of Covid-19, means resources are already stretched.
“We do not believe a nine-month implementation period is sufficient for firms to ensure the systems and processes they have in place are sufficient both to measure consumer outcomes and provide the level of reporting distributors will now have to send upstream to manufacturers,” she continued.
“We believe a two-year implementation period would be more suitable and are aware of other industries with even bigger implementation challenges who agree.”
Inherent subjectivity of the proposals
Furthermore, Field argued the inherent subjectivity of the proposals remained a concern, especially with respect to the application of the duty by the Financial Ombudsman Service (FOS).
“We already have long-standing concerns about the lack of alignment between the FOS Handbook and that of the FCA,” Field added.
“While we think it is right that the FCA has set its expectations to the FOS, we draw little comfort from this given it has no obligation to act upon these expectations.
“Ultimately, it is our uncertainty about how FOS will interpret the duty and, in particular what is reasonable, which will drive whether or not the implementation of the duty will ‘raise the bar for financial services’ more generally, or simply open the floodgates for claims against an industry, which continues to do its best to provide good outcomes for consumers.”