I have heard the Financial Conduct Authority’s (FCA) Consumer Duty described in many ways.
This ranges from “unnecessary meddling”, to which I do not subscribe, to the “Retail Distribution Review mark II on speed”, to which I am more inclined to lean.
It hasn’t been explicitly stated and the FCA is hardly likely to do so, but you have to draw the conclusion that the very existence of Consumer Duty is down to the failure of legislation, guidance and enforcement orders that have gone before it.
We would all, almost certainly, have different views as to whom is to blame for this failure but we all have to take collective responsibility – by which I do mean all: manufacturers, distributors and regulators.
It has to be different this time.
And it was in this frame of mind I sat down in a darkened room with a cold towel over my head to read FG22/5.
For those who have yet to have this pleasure it is the FCA’s Final non-handbook guidance for firms on the Consumer Duty.
At 121 riveting pages I couldn’t do justice to a summary of it here but I was drawn to certain sections.
I wanted to see how far the ability for manufacturers and distributors to interpret the guidance extended to those areas that represented the poorest practices and worse excesses.
Eureka moment
Working my way through the document, which is a dichotomy of comprehensive repetitive information with a distinct lack of detail, revealed numerous hints along the way.
But nothing concrete. Nothing that gave me that eureka moment.
That is until I got to Chapter 7: The price and value outcome.
It starts well at 7.1: “Retail customers experience harm where they don’t get value for money” – a clear opening gambit.
Then at 7.3: “…value needs to be considered in the round and low prices do not always mean fair value. We expect firms to think about price when assessing fair value but not at the expense of other factors”.
Again this is fair, although I doubt the FCA had higher levels of commission in mind when referencing other factors.
In 7.8 the document states: “…the price and value outcome rules should prompt questions such as: Are there fees or charges or rates which appear unjustifiably or unreasonably high compared to other comparable products (either in the firm’s product portfolio or comparable products supplied by other firms)?”
That would be yes. There are similar references along these lines in 7.10, 7.15 and 7.19.
Hitting home for manufacturers
Moving on to a sub section within the chapter titled The price charged to consumers, the first paragraph 7.25 states: “When considering price manufacturers must consider: where different distribution arrangements result in different prices for consumers manufacturers must ensure that distribution arrangements do not cause the product to become unfair value”.
Good luck with that one.
To really hit this message home for manufacturers in 7.35 it is confirmed: “Where a manufacturer sets the price, including distribution charges (i.e. through commissions) then they are responsible for ensuring that the product provides fair value.”
Chapter 7 ends with a summary of actions in 7.56 that are either consistent or inconsistent with the duty.
I cannot decide which of the examples of inconsistent actions listed are my favourite but have narrowed it down to: “A firm has products with different charges/fees/prices but with similar levels of benefit” or “A firm has a product that is priced based on risk… but one group pays costs that are disproportionate to the benefit received”.
As the headline of this pieces says, the Consumer Duty hasn’t explicitly banned loaded premiums but based upon my and any rationale person’s reading of FG22/5, it may as well have done.