FCA’s Appointed Representative regime and the regulatory focus on Principal firms
With its focus on encouraging firms to take a bolder approach to customer care, the FCA intends
With its focus on encouraging firms to take a bolder approach to customer care, the FCA intends the Consumer Duty to completely reframe how consumer protection is approached across financial services.
But with so much focus on the ‘how’, it’s sometimes easy to forget why such an ambitious initiative is being rolled out to begin with.
So, what exactly does the Consumer Duty hope to achieve? Here’s a quick rundown of the ten main objectives:
Click here to download this list as a handy PDF.
The Consumer Duty is intended to hold FCA-regulated businesses to a higher standard of care than the existing guidance’s Principle 6 – which highlighted the need for paying ‘due regard’ to customers’ needs – and 7, which mandated communications must be ‘clear, fair and not misleading’.
Encouraging firms to take a more positive, proactive approach, the duty is designed make firms put the clients’ interests at the heart of everything they do – ranging from initial product design through to complaints handling.
In the interest of maintaining standards, the Consumer Duty will ask firms to evidence that their products and services are truly ‘fit for purpose’ – and are offered for a price proportional to the benefits they provide.
To this end, the guidance suggests that you should be taking the time to ask questions such as ‘would I be happy to be treated the way my firm treats its customers?’
Firms must take ‘reasonable steps’ to avoid causing foreseeable harm to their customers – for instance, making sure any recommendations given to consumers won’t lead to unwanted ramifications further down the line.
And this is especially important for those customers considered vulnerable in one or more areas: the duty will place the onus on firms to do ample discovery to highlight areas of potential concern before proceeding.
The duty’s Consumer Principle states that ‘a firm must act to deliver good outcomes for clients’ – meaning that the success of a client’s experience is directly measured by how effectively it helped them achieve their ambitions.
Of course, positive outcomes aren’t 100% guaranteed, particularly when it comes to investments, but clients should be consistently provided with the widest possible choice in a good-faith environment.
The duty will forbid businesses from purposefully hindering customers switching to a product that may be more appropriate for them.
Needless to say, firms should already be taking a hard stance against this practice.
The new Cross-Cutting Rules stipulate that firms must do all they can to enable customers to pursue their unique financial objectives. It’s no longer enough to simply put information about different products out there: businesses must ensure the communications they provide are genuinely understandable and easy to follow for their clients.
Ideally, these should be provided across several different channels – be it telephone correspondence, paper documents or (increasingly) via smartphone apps – allowing the client to choose the one they’re most comfortable with.
Between the widespread adoption of digital channels and an increasingly diversified marketplace, it’s no surprise that some consumers can find accessing financial services intimidating.
To address this, the duty will make helping clients to navigate your offering a core pillar of consumer care. And that means firms will be expected to take clients’ behavioural biases into account, as well as being mindful of vulnerabilities that may make certain channels more daunting or inaccessible in specific cases.
For years now, the regulator has tirelessly touted the importance of healthy company cultures in achieving both positive client outcomes and commercial success. And the Consumer Duty is no different.
Aside from a common-sense directive to act in good faith towards consumers, the new measures hope to move cultural issues from a ‘box ticking exercise’ to something that’s embedded across the entire business lifecycle.
In a similar vein, Equality, Diversity & Inclusion (EDI) has been talked about quite a lot over the past few years.
The Consumer Duty will provide yet another layer of incentives to increase the range of demographics active, and properly catered for, within financial services – both within firms as employees and across their respective customer bases.
Despite best efforts, it’s become clear that the FCA’s long-standing Treating Customers Fairly (TCF) initiative simply hasn’t produced sufficient positive change to restore customers’ trust in financial services.
Consequently, it’s hoped that the renewed focus on transparency, consumer choice and empowering individuals will be transformative enough to prove that the industry is driving change for the better.
Download the infographic here.