The Financial Conduct Authority expects firms to address key fair value challenges connected to goneaway customers, data gaps, vested rights and outcomes ahead of its looming Consumer Duty deadline for closed books.
While the deadline for implementation of the regulator’s Consumer Duty passed in July 2023 for active products, closed books have until 31 July 2024.
Participating in a webinar organised by Fairer Finance earlier this week, Graeme Reynolds, the FCA’s director of competition, explained closed products and services were given the additional year to comply due to challenges in these products in the form of goneaway customers, data gaps, vested rights and fair value.
Five key themes
Consequently, he identified five key themes in areas that firms should already be considering.
These include:
- Addressing any material gaps in customer data for closed products and services and be able to evidence they are acting to deliver good outcomes
- Taking action to identify less engaged goneaway customers of closed products and services and thinking about how in terms of support they can communicate with those customers
- Taking appropriate action where a closed product or service has vested, contractual rights where they find those contractual rights are causing foreseeable harm to customers
- As with open books, considering if any groups of customers, particularly those with characteristics of vulnerability, are adversely affected by aspects of the product or service design and experience poor outcomes
- And on fair value outcomes, firms should be applying it to closed products and services on a forward looking basis
Reynolds added this is because some closed book products may be particularly prone to poor value.
He cited the example of customers in legacy products where they may pay higher charges than they would for other products where firms are competing for new business.
Fundamentals are similar
But Reynolds maintained he thought the fundamentals for fair value in most cases are little different for closed products as for open products.
“Firms should be able to assess and be able to demonstrate that closed products provide fair value to the customers,” Reynolds said.
“They should ask where prices are different to open products, why is that the case? What is the explanation from a fair value perspective?
“We expect firms to ensure they’re on track to comply with the deadline for closed book products and services.
“And of course, any firm struggling to meet the closed book deadline should very much get in touch with us to explain and help with discussion.”