Three need-to-know regulatory changes on the FCA's agenda
The hugely significant shift towards the FCA’s new Consumer Duty will culminate in its first
The hugely significant shift towards the FCA’s new Consumer Duty will culminate in its first deadline on Monday 31st October, when Implementation Plans needs to be ready for regulatory scrutiny.
Under the Duty’s overarching Consumer Principle of ‘A firm must act to deliver good outcomes for retail clients’ are four key outcomes for firms to comply with. Here we summarise crucial points for each outcome ahead of this impending date.
Understanding a consumer’s characteristics is an important cornerstone to ensuring financial products and services meet the Duty requirements. The full lifecycle of a product or service should have the appropriate governance and evidence that the design, approval, marketing and ongoing management have been created with a specific target demographic in mind. For example, if the FCA asked for the supporting evidence of a sample of customer journeys to show how the customer’s best interests are at the heart of a product’s lifecycle, would your firm be able to provide them?
Incorporating customer feedback throughout these lifecycles is another important area of focus. It’ll be important to demonstrate continuous customer feedback is incorporated into product development, which the FCA will be regulating with a more assertive, data-led approach. They’re likely to measure levels of customer trust and confidence so they can quickly identify practices that negatively affect customers.
Explaining and evidencing the associated worth of a product or service is going to be a vital part of the second Duty outcome. The FCA has indicated they may spot check firms to ensure they’re continually evidencing compliance. They’ll also be keen to see that firms are considering the needs of a product or services’ target market and that the price charged correctly reflects the associated qualities and benefits.
The price and value of a product or service will also need to be continually evaluated, as a significant change to what’s on offer to the customer could affect its fair value. If a product or service is sold to a consumer and is considered unsuitable for their needs or has unsuitable features or support, this could be considered harmful and not value for money. A simple rule for firms to follow is to ensure that there is a ‘reasonable relationship between the price charged and profitability’.
Through customer communications, whether that be verbal, printed or online, firms will need to carefully consider and evidence why the chosen method of connecting with a demographic is deemed effective. Considering customers’ needs and making appropriate product or service recommendations whilst ensuring a customer understands the product or service they’re buying is another important point to grasp.
To ensure that consumers have the right information to make decisions about their personal finances, they’ll need the relevant material to make the most suitable choice for their circumstance. Product and service communications should be clear in their benefits, cost and associated risk whilst detailing what actions are required of the customer, as well as what the consequence of any inaction would be.
The Duty also places great emphasis on safeguarding customers from making decisions that don’t best serve their needs. Careful thought and rigorous process to evidence how firm’s regularly keep on top of any changes to a customer’s situation and how they adapt to this are crucial.
Now more than ever, there are a plethora of platforms to choose from to support consumer needs. When deciding which option best suits a products or services market, there are two important points to consider. Firstly, the channel of communication should meet the needs of the customer, secondly if a product has been designed for a specific group, it should be clear in the product or service marketing that this may not best suit everyone’s needs.
Amidst the cost-of-living crisis it’s likely that more consumers than ever will be requiring support, and the FCA are keen to see this. In June, Sheldon Mills Executive Director of Consumers and Competition at the FCA said ‘Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve.’
Did you know that you can now have your Consumer Duty Implementation Plan externally validated by TCC’s expert compliance team? We help you ensure that your plan won’t let you down during the implementation stage.