As part of it’s incoming Consumer Duty the Financial Conduct Authority (FCA) has set out ten expectations of how firms should act to ensure they are complying with the new rules.
These expectations prioritise firms putting consumers at the heart of their business and include not seeking to exploit customers’ lack of knowledge and conducting regular monitoring.
The Consumer Duty, published today, sets higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first.
It includes a suite of rules and guidance setting more detailed expectations for firm conduct in four areas that represent key elements of the relationship with consumers:
- the governance of products and services
- price and value
- consumer understanding, and
- consumer support.
The duty is underpinned by the concept of reasonableness, which the FCA said is an objective test and “means that the rules and guidance must be interpreted in line with the standard that could reasonably be expected of a prudent firm:
- carrying on the same activity in relation to the same product or service, and
- with the necessary understanding of the needs and characteristics of the customers in the relevant target market.”
As part of this, in its FG22/5 Final non-Handbook Guidance for firms on the Consumer Duty the regulator set out its expectations for how firms should act under the duty.
The ten elements firms should enact are:
- put consumers at the heart of their business and focus on delivering good outcomes for customers
- provide products and services that are designed to meet customers’ needs, that they know provide fair value, that help customers achieve their financial objectives and which do not cause them harm
- communicate and engage with customers so they can make effective, timely and properly informed decisions about financial products and services and can take responsibility for their actions and decisions
- not seek to exploit customers’ behavioural biases, lack of knowledge or characteristics of vulnerability
- support their customers in realising the benefits of the products and services they buy and acting in their interests without unreasonable barriers
- consistently consider the needs of their customers, and how they behave, at every stage of the product or service lifecycle
- continuously learn from their growing focus and awareness of real customer outcomes
- ensure that the interests of their customers are central to their culture and purpose and embedded throughout the organisation
- monitor and regularly review the outcomes that their customers are experiencing in practice and take action to address any risks to good customer outcomes
- ensure their board or equivalent governing body takes full responsibility for ensuring the Duty is properly embedded within the firm, and senior managers are accountable for the outcomes their customers are experiencing, in line with their accountability under the Senior Managers and Certification Regime (SM&CR).
The FCA confirmed to Health & Protection that despite calls from the industry to do so, it will not be banning loaded premiums as part of the Consumer Duty.
However, it may look at the issue over the next year as it begins to review implementation of the duty.
The regulator also extended the time firms will have to enact the rules within their organisations with a full year given for active products and services and two years for it to apply to closed book customers.
