The Personal Finance Society (PFS) has emphasised the importance of changing culture within financial services firms to meet the Financial Conduct Authority’s (FCA) incoming Consumer Duty.
The representative body for financial advisers also noted that it does not expect the new rules to require a significant change in how records are kept and how individual customer complaints are addressed by regulators.
The details came in the good practice guide for personal finance firms published by the PFS in response to demand by its members.
Culture change
Discussing meeting the rules, the guide said: “What is even more important than the changes in rules is the anticipated change in culture that the FCA talked about in its 2019 feedback statement – looking to firms to ask themselves: ‘is this right’ rather than ‘is this within the rules’.”
It noted that during the build up to the Consumer Duty, the FCA has referenced a good practice model that was developed as part of its guidance to customers in vulnerable circumstances.
“This is a dynamic model that requires firms to monitor the effect their proposition is having on consumer outcomes,” the PFS said.
“Firms are then expected to analyse the outcomes and learn from them. This means that having a ‘cottage industry’ of management information is not enough.
“Firms’ senior management are expected to show that they have understood feedback and have used it in refining their firms’ proposition, ready to be monitored and analysed again.”
Diverse feedback
The PFS also highlighted how critical it was for firms to use a wide range of people and viewpoints when learning about the impact of its products and services.
“For example, a firm that has a diverse range of employees, or access to a diverse network of experts, is more likely to learn about the implications of feedback than a firm that only looks at analysis through one lens,” it said.
“As the FCA has said in its 2022 Policy Statement: ‘diversity is a lens that can help firms to better understand and meet the needs of their customers, including those in vulnerable circumstances. We see significant practical benefits in firms exploring customers’ needs from different perspectives.’”
Compliance and complaints handling
Regarding compliance, enforcement of and complaints invoking the Consumer Duty, the PFS sought to reassure advisers that the regime would likely not require substantial changes to approaches in some respects.
The PFS said there had been a lot of discussion about how the Financial Ombudsman Service (FOS) will interpret requirements such as the obligation to ‘avoid foreseeable harm to retail customers’.
“It is worth stressing that the FCA sees the Consumer Duty to be implemented at a segment level, rather than an individual level,” the PFS said.
“It has said, ‘Our expectations apply based on what is reasonable. We do not expect firms to exhaustively segment their customer base to identify differences in outcomes between all possible groups of customers.’”
“As is the case now, the FCA believes that advisers should consider the overall impact of a recommended set of products and services for a client.”
It added that the Consumer Duty “underlines existing requirements for advice and record-keeping at an individual client level, rather than creating new ones.”