Context
The FCA has published six Dear CEO letters, five addressed to particular sectors and one to ‘all other firms’, outlining its views on the requirements for ‘closed products’ under the Consumer Duty. The extended deadline for the full application of the Duty to ‘closed products’ is 31 July 2024. The six letters were sent to the retail banking sector, the life insurance sector, the asset management sector, the consumer investments sector, the consumer finance sector, and to all other firms.
Key points to note and next actions
For the purposes of the Duty, a closed product or service must meet both of the following criteria:
1) there are existing customers who took out a contract before 31 July 2023, and
2) the product or service has not been marketed or distributed (including by renewal) on or after 31 July 2023.
Importantly, a product that was closed to new customers on or after 31 July 2023 is not a closed product for the purposes of the Duty. These products became subject to the Duty on 31 July 2023.
The first two pages, introducing the letter, are all but identical across all six letters, and explain that the letters aet out:
- The application of the Duty to closed products and services;
- priority issues that are particularly acute or widespread in closed products and services;
- action prompts to ensure firms are prepared for the 31 July 2024 deadline for closed products and services (the FCA website gives examples of good and poor practices for open products and services); and
- a reminder, in Annex 1, of the definition of closed products and services and an overview of the rules.
The sections of the letters headed as follows are almost identical in each letter, with the five ‘priority areas’ carrying the same headings in each.
- Application of the Duty to closed products and services; and
- Priority areas for firms to consider.
The five priority areas:
- Gaps in firms’ customer data.
- Fair value.
- Treatment of consumers with characteristics of vulnerability.
- Gone-away or disengaged customers.
- Vested contractual rights.
The content differs for each sector, as do the ‘Action prompts for firms’, under these five headings. The closing ‘For more information’ section carries very similar content across each of the letters. We recommend that insurance distribution firms should read the ‘all other firms’ and the ‘consumer finance’ sector letters.