The Financial Conduct Authority published finalised rules and guidance on the new consumer duty on June 27 2022.
The purpose of the duty is to set a higher and clearer standard of consumer protection across financial services, with a requirement on service providers to put customers’ needs first at every stage of their journey.
In support of the duty, the new Principle 12 places emphasis on the requirement for companies to deliver good outcomes for retail customers.
The duty incorporates three cross-cutting rules, under which companies must act in good faith towards retail customers, avoid causing foreseeable harm to retail customers, and enable and support customers to pursue their financial objectives.
These rules support four customer outcomes in relation to products and services, price and value, consumer understanding, and consumer support.
Where it applies, Principle 12 replaces Principle 6 (treating customers fairly) and Principle 7 (communications must be clear, fair and not misleading).
Historically, customers have sometimes found it difficult to access support or to understand information relating to products and services, which has resulted in them being unable to make a decision best suited to their personal financial objectives.
The FCA has therefore made it clear that it sees the duty as a cultural change across the financial services industry, marking a move towards rules that are outcomes-based. However, these outcomes are broad in nature and compliance is therefore subject to interpretation.
Preparing for implementation
With the deadline for implementation of the duty for open book products fast approaching (July 31 2023), companies should already be well under way in assessing where intervention is necessary across their business, to comply with the duty.
Where a company identifies that a particular stage in a customer’s journey is not fully compliant with the duty, it is important to continue taking steps to effect any necessary changes by the July deadline.
These changes and any plans for implementation should be regularly discussed with the company’s consumer duty board champion, which is a role that is given to a firm’s independent non-executive director.
The FCA may call upon companies to share information that is discussed with the champion and so it is important to ensure that the content of the discussions is well documented.
With implementation in mind, the FCA has recently published an article that highlights some of the key questions that companies should be considering as they work towards implementation — One month to go for the consumer duty.
Some important considerations for companies are first, to identify who their customers are and their target market for a particular product or service. This is vital to ensure that the product or service is suitable for customers’ needs and this should be continuously monitored.
