The Financial Conduct Authority’s Consumer Duty is set to come into force for new and existing products or services that are open to sale or renewal on 31 July 2023 and for closed products or services on 31 July 2024.
At a recent event for financial planning professionals, it was fantastic to see so many already recognising the importance of reviewing the way they work today to ensure they meet the regulator’s new standard for client-centricity from next summer onwards.
Overcompliance
Many firms will find that what they are doing already goes a huge way to complying with the duty, and in some areas, the big risk may be over-compliance.
The FCA’s rules require firms to consider the needs, characteristics, and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey.
I think there is a real opportunity here for us to take greater control of our destiny or be passive and wait for the regulator to act
As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.
However, the questions that were asked during the event and conversations during the coffee break made it clear that some financial planners are thinking of the Consumer Duty at the level of individual clients, rather than as segments.
Segmentation
The FCA’s requirements state the evidence has only got to be on the level of segments, with a policy put in place by financial planning firms to treat each segment differently.
As a result, action and recording is needed at a management level, not an individual client level, when it comes to meeting the requirements of the FCA’s Consumer Duty.
Ultimately, the Personal Finance Society views the Consumer Duty as an opportunity for the profession to prove how client-centric it is.
We have welcomed the confirmation from the FCA that consumers having strong confidence and levels of participation in markets is one of the key outcomes that they are looking for from the Consumer Duty.
Confidence
No market can exist without the confidence of the public, and the Personal Finance Society believes it is important that we measure the key elements of confidence and trust to identify areas where change is needed and to identify areas in which more regulation would be unnecessary.
We also support the FCA’s move to outcome regulation.
It is clear the detailed, prescriptive rules that were a regular feature of previous regulation, including European Union regulation, created unnecessary bureaucracy without necessarily providing better outcomes for the public.
Some financial planners are thinking of the Consumer Duty at the level of individual clients, rather than as segments
However, we also understand the concerns of some firms that outcomes-based regulation may leave them with responsibilities for outcomes over which they do not have complete control.
We think the solution for this is for the FCA to be specific about the kind of culture and mindset that it Is looking for within firms, so that it can treat firms that are looking for the right answer, but have not yet found it, differently from firms that are not interested in improving consumer outcomes.
Vulnerable clients
The FCA’s model for vulnerable customers of monitoring outcomes, analysing, and learning from experience and testing and improving propositions because of the learning is a good basis for this, and should be given more prominence in the guidance the regulator issues to financial planning firms getting to grips with what this means for the way they work.
Financial planning professionals who can demonstrate the value they are providing for consumers could use the Consumer Duty to win the freedom to do what works rather than being micro-managed by prescriptive regulation.
As demonstrated by Chancellor Kwasi Kwarteng’s speech shows, there is now a real appetite from the top of government to remove barriers for enterprise and ensure the UK is a global presence in the financial services sector.
I think there is a real opportunity here for us to take greater control of our destiny or be passive and wait for the regulator to act.
Matthew Connell is director of policy and public affairs of the Personal Finance Society
The whole point of TCF is that it is outcomes based – specifically so. ‘The FCA rules require that firms consider the needs, objectives and characteristics of their customers’. That has always been the case Matthew and TCF stresses the need for firms to focus on outcomes. What therefore is the new Consumer Duty adding for the customers of advisory firms? More FCA form filling and questionnaire answering no doubt. What value is this adding other than employment opportunities at the FCA?
I’m not sure I’d be quoting Kwasi Kwarteng…