Last year was significant for the financial services industry and consumers alike.
Amidst a cost of living crisis, the ongoing war in Ukraine, and the lingering effects of the 2022 "mini"-Budget, we saw the introduction of the Financial Conduct Authority's new flagship policy, the consumer duty.
The duty introduced a series of new rules and outcomes for firms to adhere to, with the overarching principle of needing to deliver good outcomes for retail customers.
July 31 2023 saw the introduction of the consumer duty for existing and open products, and the FCA is closely monitoring how firms are performing and what improvements customers and the industry are seeing.
The FCA has, so far, taken only limited direct action in terms of enforcement of the duty. New regulatory regimes inevitably require a period of settling-in, with both regulated firms and the FCA requiring time to embed the new practices and identify any immediate issues that require attention.
In the initial few months after implementation, the FCA published a number of ‘Dear CEO’ letters and other guidance and documentation, setting out its initial observations on how the industry was performing from a consumer duty perspective, and what further steps firms should be taking.
However, as we move forward into 2024, the FCA is becoming increasingly vocal on enforcement issues, and in February opened a new consultation setting out its proposals for reforms to its enforcement practices.
A recurring theme in this consultation is the idea of ‘naming and shaming’ poor performers, including a proposal to publicly announce the opening of new regulatory investigations against firms.
Given the significance the FCA has placed on the consumer duty and the amount of attention and publicity it has given it, the FCA needs the duty to work.
Given this, and when we consider it against the proposed reforms to enforcement, it seems inevitable that the FCA will be aiming to actively monitor and enforce compliance. Firms should, therefore, work on the basis that the honeymoon period for the consumer duty is over.
For firms, the implementation of the duty for closed products is a chance to show that they have learned the lessons from last year, and that they have been able to review and reflect on how suitable their original plans for implementation were.
Closed products
To recap, a ‘closed product’ is defined as a product:
- where there are existing contracts with retail customers entered into before July 31 2023; and
- which is not marketed or distributed to retail customers (including by way of renewal) on or after July 31 2023.
An example may include an insurance product that was available to retail customers before July 31 2023 and where some of those contracts/policies remain active, but which are no longer available for purchase by new customers or renewal by existing customers.
The consumer duty will formally be extended to these products from July 31 2024.
In a speech delivered at a KPMG event in London, Sheldon Mills, the FCA’s executive director of consumers and competition, recently reminded the industry that firms were given an extra year before closed products fall within the duty’s remit because it recognised the complexities of historic systems.
