FCA’s New Consumer Duty – What is it and what do you have to do?
REGULATORY UPDATE IN ASSOCIATION WITH DELOITTE - THURSDAY 20 JANUARY 2022 In the first of our regular monthly Regulatory Updates in association with Deloitte, Broker Club members were given a very comprehensive review of the FCA’s focus - and expectations - with respect to its proposed expansion of Consumer Duty principles and associated obligations on firms. Deloitte_Consumer Duty While concerned initially that the FCA would simply define high level principles, in fact they have provided very detailed draft guidance on their expectations with respect to firms’ adherence to proposed new Consumer Duty principles. As the FCA states ‘new rules will require firms to focus on supporting and empowering their customers to make good financial decisions and avoiding foreseeable harm at every stage of the customer relationship. Firms will have to provide consumers with information they can understand, offer products and service that are fit for purpose and provide helpful customer service….The FCA will use assertive supervision and its new data led approach to intervene quickly when it identifies practices which do not deliver for consumers.’ https://www.fca.org.uk/news/press-releases/fca-introduce-new-consumer-duty-drive-fundamental-shift-industry-mindset As one of our presenters observed “it’s a big, big change….not just what we had before with bells on…” The overarching sentiment of the proposed new Consumer Duty rules, encapsulated by the new Principle 12, is that firms MUST ACT TO DELIVER GOOD OUTCOMES FOR RETAIL CUSTOMERS. This obligation will be underpinned and reinforced by specific Consumer Duty amendments to existing SMCR regulation – with associated annual attestation - to ensure that firms are responsible and accountable from the top down for ensuring appropriate Consumer Duty protections with respect to the services and products they sell (and further, in supporting customers post-sell ‘in every interaction they have’). While the principle of ‘caveat emptor’ does not go away, it applies only where firms can demonstrate that they took reasonable and appropriate steps to make sure customers knew what they are buying. This goes beyond the traditional ‘clear, fair and not misleading’ basis of customer protection since “a firm’s understanding is not necessarily the same as its clients”. So what does this mean in practice for firms? As Broker Club member firms get to grips with yet more rules and compliance obligations, Deloitte has helpfully outlined the key steps for firms to take on the journey to satisfying new Consumer Duty obligations. Download Deloitte's very comprehensive advice on plannng to satisfy the four Outcomes prescribed in the new rules – and as importantly, what you will have to demonstrate to the FCA if so required. In conclusion, the clear message to Broker Club members is that the FCA expects a paradigm shift in firms’ treatment of retail customers, with positive, proactive actions which firms must take, based on a concept of ‘reasonableness’ that requires firms to demonstrate greater judgement in determining how their actions, processes etc. deliver good outcomes. Further, by underpinning the new Duty with rules and guidance, the FCA is clearly laying down more routes for enforcement when the new Duty comes into force (April 2023). “The new duty will drive a change in culture at firms. We expect firms to step up and put consumers at the heart of what they do and we’ll be holding senior managers accountable if they do not. The duty will also help create an environment for healthy competition between firms, encouraging them to be innovative in developing products and services that meet consumer's needs.” Sheldon Mills, Executive Director of Consumers and Competition, FCA The FCA consultation is open until 15 February 2022 and the FCA expects to confirm any final rules by the end of July 2022.