The FCA has confirmed that firms would have a year to adopt new consumer duty regulations for goods and services that are presently being sold.
But “closed-book” providers have been allowed until July 31, 2024, to update older products that are no longer on the market to the new, more stringent regulatory standard.
According to the new consumer duty rules, all retail financial services companies must strive to provide “good outcomes” for their clients. The duty to ‘treat customers fairly’ and to communicate in a way that is “clear, fair, and not misleading” will be effectively replaced by the duty.
The new regulations are designed to make sure that all aspects of financial services, particularly those relating to goods and services, prices and value, consumer awareness and support, are centred on providing good customer outcomes.
AJ Bell head of retirement policy Tom Selby says: “The consumer duty is effectively a gauntlet laid at the feet of all UK financial services firms by the FCA. The regulator has been absolutely crystal clear that the new rules are intended as a step up in standards, with firms required to aim for ‘good outcomes’ for customers when designing products, setting prices, providing support and communicating.
“While firms offering products and services that are still for sale will be given 12 months to implement the requirements, so-called ‘closed-book’ firms no longer selling new products have been given until 2024 to comply. The FCA will likely receive some flak for this decision, especially given much of the worst detriment in terms of things like high charges and poor service often sit squarely with firms no longer actively trying to win new business.
“The regulator might argue closed-book providers need more time to update antiquated systems, but that will come as little comfort to customers stuck in poor value products and receiving unsatisfactory service.”
“One of the big challenges facing the FCA is ensuring there is a credible threat of enforcement for firms that fail to meet its expectations. The inconvenient truth is that ‘good’ firms are likely to already be meeting much of the regulator’s new expectations, while ‘bad’ firms are often flouting the existing rules.
“To raise the laggards up to the standard of ‘good’ firms, the FCA will need to demonstrate ‘bad’ firms will be punished. “The Financial Ombudsman Service (FOS) will also play a critical role in interpreting the Consumer Duty on the ground.“There is a very real risk that spurious complaints will be made against firms by Claims Management Companies (CMCs) looking to take advantage of the new standard. “The regulator will need to watch CMCs like a hawk and come down hard on any dodgy behaviour.”
“More broadly, the Consumer Duty brings to a head the arguments around the boundary between guidance and advice. If the full benefits of the Duty are to be realised, the FCA – or possibly the Government via legislative reform – will need to provide clarity on this boundary. Without such clarity, there is a risk customers will receive sub-optimal levels of support when making often complex financial decisions.”
Aegon pensions director Steven Cameron says: “We fully support the FCA’s new Consumer Duty and its ambition to ‘level up’ all parts of the retail financial services industry, delivering good outcomes and putting customer needs first. This will involve a fundamental industry-wide review to make sure products and services meet customer needs and offer fair value, testing customers can understand all forms of communication and examining whether customer support is truly meeting needs.
“Carrying out such an all-encompassing review thoroughly will take time. We’re pleased the FCA has listened to requests for an extended and prioritised timeline. Deferring the deadline for ‘open’ products and services, albeit by only three months till July 2023, is welcome but timelines remain tight. The extra year to implement changes for legacy books closed to new business is also helpful, particularly for firms with policies many decades old, with policy conditions written for a very different world. It’s in everyone’s interests, including consumers, that priority improvements are delivered first.
“Many firms, including Aegon, have already undertaken a gap analysis against the draft FCA rules, and will now revisit this to reflect these final rules and guidance. One significant change is the FCA has amended the definition of retail customer to include beneficiaries of trust‑based pension schemes, where an FCA authorised firm provides services to a trustee.
“We had called for additional guidance in many areas and the final version of the guidance has increased from 72 to 120 pages, with further sector-specific guidance promised. There is more guidance on the respective responsibilities across what are often complex distribution chains involving fund managers, platforms, product manufacturers and advisers. To deliver on the new Duty, every firm will need to understand changes in approaches of those before and after them in the distribution chain. This will be one of the greatest challenges ahead and close collaboration will be key. We hope through an iterative process that industry-standard approaches will emerge in areas such as data exchange and presentation of ‘value assessments’.
Norton Rose Fulbright global head of financial services regulation Jonathan Herbst says: “The Consumer Duty represents a step change for firms in how they are expected to treat retail customers. These proposals are part of the FCA’s broader push to ensure that firms are proactively doing the ‘right thing’ for customers. It will be important for firms to interpret the overarching Consumer Principle and the accompanying rules and guidance within this context.
“Although it will take time to see the effect of these proposals on the market, it is clear at this stage that firms will need to undertake a thorough review of their current approach to retail customers. As many of these rules come into force in only a year, firms all across the market will quickly need to get to grips with these proposals in order to meet the FCA’s implementation deadline.”
Moneyhub CEO Sam Seaton: “We’ve come a long way, but there’s a long way still to go – and the next leap forward is the move to aggregating individual customers’ data, from banking and pensions to loans, investments, mortgages and properties, and making use of the insights of Open Finance.
“Consumer Duty certainly presents an alarming array of demands and challenges, but it also presents an even broader array of opportunities. Providing the data-driven insights that can underpin individual, personalised propositions like this is at the heart of what Moneyhub does. And we can provide them either directly to the customer or, with the customer’s permission, to firms providing products and services, so they can create tailored communications and propositions to meet individual customers’ proven needs.”
PIMFA head of public affairs Simon Harrington says: “The Consumer Duty has the potential to be a transformative piece of regulation which will, we hope, substantially improve how firms serve consumers and work towards ensuring they receive superior financial outcomes.
“But for that to be the case, as we have previously argued, firms need more time to implement the new regulations. We welcome the fact that the FCA has now recognised that such a transformative piece of regulation does indeed require additional time for firms to implement new systems and processes to comply with it.
“The decision to extend the implementation of the Consumer Duty to 12 months for new and existing policies, and then another 12 months for closed books, is broadly in keeping with our recommendations to the FCA. We are pleased the Regulator has listened to the industry and demonstrated a willingness to work with us to ensure this new regulation works well from the very beginning. Our focus now will be on supporting firms to implement the Duty.”