New Consumer Duty Rules – July 2022 – Policy Statement and Final Guidance | Regulatory Updates
 

New Consumer Duty Rules – July 2022 – Policy Statement and Final Guidance


General Background

The FCA has published its policy statement on a new Consumer Duty together with its final guidance. The duty includes a new Consumer Principle that ‘a firm must act to deliver good outcomes for retail customers’.

The new Consumer Duty can be seen as one of the most significant developments in consumer regulation in recent years, providing the FCA for the first time with a single regulatory standard that it can apply across the complete spectrum of the regulated financial services sector. Firms should note that this is regardless of product or service, and also applies to all participants in any relevant distribution chain.

Firms will need to overcome several obstacles to comply with Consumer Duty – the wide scope of the obligations and the resulting impact will have a direct impact on many parts of the business model. The challenges around adapting to this new regulation may unveil the strengths and weaknesses of the firm’s change response.

Key Points

It is vital for your firm’s Board to agree an implementation plan before the end of October 2022. This means that the Board should ideally meet twice before that date to discuss and agree the plan.

As an initial brief summary, firms are encouraged to examine the key points below:

  • Culture and Strategy
    • Management needs to demonstrably show that the customer is truly at the heart of both the culture and strategy of the firm and as such act in good faith toward their customers. This entails a reflection in not only its Code of Conduct, but also in the firm’s behaviour towards its customers.

  • Senior Management Responsibility
    • The FCA has made it clear that Consumer Duty will require a significant shift in both culture and behaviour for many firms. These proposals require a Champion of the Consumer Duty at Board level and should be written into Board procedures and the Statements of Responsibilities for all relevant SMFs.

  • Customers
    • Whilst the Consumer Duty relates to retail customers, this is a much wider definition than just “consumers” and can even include SME’s and local authorities in specific circumstances.

  • Distribution Chains
    • These need to comprehensively review their product governance policies and procedures to reflect the new requirements.

  • Risk Assessment
    • Firms should conduct a risk assessment assessing customer detriment throughout the firm’s operations.

  • Product Design
    • Firms need to update their Product Design and New Product Approval Processes to demonstrate that products and transactions are designed with the customer in mind.

  • Financial Promotions Strategy
    • Firms need to make their financial promotions fair which should include reviewing the content of financial promotions in addition to the whole strategy for communicating to both new and existing customers and thus the approval of financial promotions. The FCA’s recently published statement on financial promotions, especially for higher-risk investments, should be taken into account.

  • Vulnerable Customers
    • Firms need to consider the vulnerabilities of their customers, identifying such vulnerabilities with the aim of positive customer outcomes in these circumstances. This should, if deemed necessary involve conducting a complete review of their current approach to treating vulnerable customers fairly.

  • Redress
    • As always Customer complaints provide a significant source of intelligence for both a firm and the FCA on poor customer outcomes. Given the new requirements, firms should review the complaints process and address remediation and learning from any perceived (or otherwise) lessons learnt.

The Future

Consumer Duty promises to form an essential strand of regulatory requirements moving forward. Firms are encouraged to start addressing it now.

The FCA has extended the start date by three months to 31 July 2023 for new and existing products and by fifteen months to 31 July 2024 for closed-book products. However, as stated, firms should begin working on the new Consumer Duty rules and requirements without delay.

Whilst the FCA has stated that the new regime has been ‘baked into’ SM&CR, firms should note that there is a requirement for the boards of regulated firms to produce an annual report setting out how they met the consumer duty as well as highlighting any areas that need to improve.

 

 

Should you have any questions on the new Consumer Duty or any other regulatory needs please contact Xcina Consulting.

The FCA policy statement (PS22/9) can be found here

The FCA final guidance (FG 22/5) can be found here

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