A New Consumer Duty - what is it and who does it affect?
Posted by siteadmin on Monday 4th of September 2023.
The FCA has released the final regulations and instructions for a new Consumer Duty that will establish clearer and higher expectations for firm standards and for consumer protection and care across the financial services industry. They mandate that businesses prioritize the interests of their clients. Ensuring customer needs are at the fore front whilst bearing in mind that the services and products offer value for money. A customer outcome -based culture is paramount.
Consumer Duty is a crucial piece of regulation that raises the bar for the level of care that businesses in the financial services sector must provide to customers in retail financial markets.
Its aim is to guarantee that current best practice - regarding consumer results – is consistent throughout the sector. Good client outcomes should already be ingrained in the daily operations of registered advisory businesses, but Consumer Duty now makes it a key responsibility for those firms to actively protect its customers and to be able to demonstrate that the needs of the customer are at the forefront of all financial planning discussions.
What is being changed?
Consumer Duty is a new principle that calls on businesses to take action to provide satisfying results for retail customers.
Regulations pertaining to the four results of price/value, consumer understanding, consumer support and areas for improvement are fundamental components of the business-consumer interaction. All these factors play a crucial role in encouraging positive customer outcomes.
For new and existing financial products or services that are open to sale or renewal, the rules came into force on 31 July 2023. However, for closed products and services, the rules will come into place on 31 July 2024.
The steps being taken…
Businesses are being expected to consider the results of the FCA’s study which triggered these changes and, where necessary, develop their implementation strategies and plans in line with best practice.
The FCA has been supporting businesses to implement initiatives ahead of the July 2023 deadline, but these are now being enforced, such as:
- From now on, if and when the FCA has concerns about a firm's intentions or strategy, they will continue to speak with them and keep track of how well the Duty is being incorporated. With some larger companies, they will also collaborate with and support board champions.
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They will shortly distribute a survey to a sample of businesses to better understand the steps that are being taken to implement Consumer Duty, and they will interact specifically with smaller businesses.
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They will soon send letters to businesses outlining the FCA’s main expectations for enforcing Consumer Duty and impressing upon them,the major risks and penalties regards consumer damages if they fall short of their new responsibilities.
The FCA will use Consumer Duty to hold businesses accountable for providing positive results for customers, including their Senior Managers and Boards. Senior executives in businesses should be driving the necessary adjustments to fulfil the Consumer Duty standard.
The FCA has established a requirement that companies nominate a champion for the Consumer Duty at the board level or equivalent. In accordance with the Senior Managers & Certification Regime (SM&CR), this is not a ‘prescribed responsibility’. Rather, this champion's responsibility is to assist the chair and CEO in bringing up the matter of Consumer Duty in all pertinent talks and to press the firm's management on how it is implementing it and putting the needs of its customers first. The new regulations are very clear that the FCA wants essential departments – such as risk and internal audit operations - to have a strong customer focus.
For more information about what this means for you, get in touch or call 0121 285 8528.
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