Over the last couple of days, articles, comment and feedback on the FCA’s Policy Statement PS 22/9 on “A new Consumer Duty” have dominated the financial industry news wires.
The reactions have ranged from “business as usual” to Chicken Licken’s “the sky is falling!” The latter is probably because the new Consumer Duty will have an impact on every link in the product provider/platform/adviser chain. I doubt many will stand up and say they don’t already aim to deliver good outcomes for consumers.
What is all the fuss about?
The current FCA Principles for Business include Principle 6, “A firm must pay due regard to the interests of its customers and treat them fairly” (Treating Customers Fairly), and Principle 7, “A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading”. These two are to be replaced by a new Principle 12: “a firm must act to deliver good outcomes for retail customers”.
In the FCA’s words, this new principle “best reflects the outcomes focus of the Duty, goes further than Principles 6 and 7 and is a clear break from existing terminology”.
TCF is not being ditched completely, however, as the Policy Statement says that “where existing guidance explains how firms can comply with Principles 6 or 7 (for example, where a piece of guidance begins with ‘in order to treat customers fairly a firm should…’) this remains relevant to firms in considering their obligations under Principle 12”. The onus, therefore, is on going further than TCF, and supplying evidence of how they are acting to deliver good outcomes for their retail customers.
In all, the FCA has stipulated four outcomes:
- Products and services – designed to meet the needs, characteristics and objectives of a target group of customers and distributed appropriately;
- Price and value – firms to assess their products and services in the round to ensure there is a reasonable relationship between the price paid for a product or service and the overall benefit a consumer receives from it;
- Consumer understanding – consumers to be given the information they need, at the right time, and presented in a way they can understand; and
- Consumer support – firms’ customer service should enable consumers to realise the benefits of the products and services they buy and ensure they are supported when they want to pursue their financial objectives.
While the FCA has accepted that the original timetable was too tight to implement the new rules, it is certainly not a case of breathing a sigh of relief and sitting back until next July. By the end of October, the management of all firms should agree on their implementation plan and determine how they will make sure they are fully ready by next July. Providers will be expected to supply all key information to distributors well in advance of the deadline – the FCA says three months before – so all firms in the chain can be compliant in good time.
The FCA also says that firms “should expect to be asked to share implementation plans, board papers and minutes with supervisors and be challenged on their contents”.
Part of this takes the Asset Management Market Study to the next level. No longer will fund boards produce an Assessment of Value report that nobody reads, as advisers and platforms will need to show evidence that their products and services deliver fair value to their retail customers, so it is unlikely that they will be able to recommend any funds placed under “special measures” for not providing good value.
Board members at fund groups and distributors will need to show that they are challenging the status quo on all four outcomes (in a constructive way, of course) and they will want to ensure their views are minuted, for when the FCA comes knocking.
Overall, the Consumer Duty is about the culture throughout firms, from product design to customer support and pretty much everything in between. And equally importantly, it is not just about putting the customer first, it is also about showing how they put the customer first.