FCA’s Appointed Representative regime and the regulatory focus on Principal firms
On Monday, 31st October 2022, TCC’s Associate Director and Consumer Duty expert Neil Dethick
The specialist panel – featuring Recordsure’s Programme Director Adeline Han and Chief Product Officer Garry Evans, alongside guest speaker Neil – delved into some of the most pressing Duty obligations facing financial service firms.
Catch up in the webinar here
The discussion included practical tips to help firms get ready for the new Consumer Duty and achieve long-term regulatory success, along with valuable insight into how the Duty is likely to be applied.
31st October 2022 marked the first key milestone in the FCA’s Consumer Duty timeline. By then, firms were expected to have agreed their Implementation Plans with their board or governing body and to submit it for regulatory scrutiny if requested.
This means firms should have considered their approach to the Duty requirements and how they’re thinking about good customer outcomes – and by now should have devised answers to fundamental questions like what a ‘good outcome’ means for their customers and how it can be measured.
It’s equally crucial that FCA-regulated businesses have a clear understanding of the gaps that exist between their current practice and where they need to be by the time the rules come into effect: 31st July 2023 for new and existing products and services, and 31st July 2024 for closed products and services.
The panel offered key advice for businesses looking to realign their strategy towards the new, higher standards of customer care.
Many firms will say they’re already putting their customers’ interests first and consider safeguarding consumers a key priority. Is this enough to be Consumer Duty compliant?
Although businesses may genuinely believe they’re already doing right by their customers, the FCA has reported that too many firms are still not living up to the standards it wishes to see.
For starters, it’s commonly finding instances of information being presented in misleading or difficult way for consumers to understand. Despite best efforts by the regulator, products and services are still being sold to customers that either don’t provide the benefits they’re looking for or don’t offer fair value for money.
As such, the Consumer Duty isn’t simply a rebrand of the established Treating Customers Fairly (TCF) doctrine – it signals a significant step change in what it means to truly put customers at the heart of all decision making. But not only that. It also represents a clear statement of intent from the FCA regarding the shift towards a more proactive, ‘assertive supervision’ model of regulation.
The most fundamental difference between these two initiatives is that TCF took the form of principles-based guidance that was meant to help businesses achieve positive results for their customers, whereas the Consumer Duty is underpinned by a rigid set of rules that will be actively enforced by the regulator.
Therefore, the Duty will place more emphasis on outcomes, backed by strict monitoring and testing requirements – alongside enhanced oversight responsibilities for boards.
Beyond that, the new legislation marks a step up in terms of governance standards, holding senior managers and executives more directly to account. The newly created Conduct Rule 6 also reflects these higher conduct and behaviour expectations and is intended to create an environment where compliance and customer-first principles cascade down to all levels within an organisation.
The specific areas will vary from firm to firm – but there are a few key points of contention that repeatedly crop up when talking to clients.
First and foremost, the ‘price and value’ outcome: what constitutes fair value, and how can this be quantified? The renewed focus on proportionality means that firms will have to think carefully about their charging structures – especially in cases where they previously charged flat or ad valorem fees. A 10% flat rate on a mortgage, for example, would cost £10,000 for a £100,000 loan but exponentially more for a £1m loan – and the new rules make this extremely difficult to justify without proving the larger mortgage required ten times the work.
Elsewhere, ‘consumer understanding’ also poses a challenge: how can firms be sure their customers genuinely understand the information presented to them? How can this be accurately tested, and how often should these audits be carried out? Plus, given that customers’ financial situations and priorities change over time, how far should businesses go to ensure their customers still grasp the implications of their long-term arrangements?
Firms are also raising concerns about the increased level of monitoring and supervision required for Consumer Duty compliance – for instance, what kind of MI will be required to meet these standards? How can this data be accurately and routinely compiled, and how much can the firm rely on it to tell the whole story? Fundamentally, how can the lessons learned be translated into effective governance and policy decisions?
Neil Dethick will be joining the panel again on Wednesday November 16th at 2pm for the second webinar in their Consumer Duty series: ‘Consumer Duty’s good customer outcomes: Understanding the regulatory expectations’. Reserve your space today, register now.