| Link(s): | Consumer Duty: the art of the possible in a year | FCA Consumer Duty implementation: good practice and areas for improvement | FCA |
Context
Sheldon Mills, FCA Executive Director, Consumers and Competition, has given a speech looking ahead to the deadline for ‘closed products’. Mills addresses some of the challenges firms are facing and sets out that the FCA expects firms to have a clear roadmap to comply by the 31st July 2024 deadline.
The FCA has also published its findings of good and bad practice in a report. Many firms have already made great progress on the Duty, for example, firms removing jargon and moving clients to less bespoke and cheaper options where that is a better fit.
Key points to note and next actions
The FCA wants to see the Duty embedded across every firm at every level, with leadership from boards, and firms should take this as a reminder to continue progressing and embedding Consumer Duty within their businesses.
Key points from the FCA’s review of firms include:
Price and value
- The FCA reports that 37% of advice firms have reviewed or changed their fees structure since the Consumer Duty was introduced.
- Many fair value assessments are not relying on solid data and other credible evidence to justify the products’ value to retail customers. It is important that firms’ data demonstrates the four outcomes of the Consumer Duty.
- Some firms have relied solely on benchmarking against the market when considering their pricing, rather than considering a fuller range including the real value that a consumer derives compared to the price they pay. The equivalent of a Google Shopping search does not prove that a customer is getting a fair deal.
- The FCA wants to see firms considering all the aspects of fair value at the product level and considering the impact on different consumers.
- Board reports will come under greater scrutiny as the FCA will be looking at the evidence firms are taking to drive good outcomes.
Open and closed products
- Closed products will come under the scope of the Consumer Duty on 31 July 2024. Closed products are those that were sold before the 31 July 2023, but have not been marketed or sold to new customers since.
- The FCA understands that there may be gaps in the data firms hold from legacy systems, however, firms will need to have a plan for how they will produce one, and how firms will evidence that it is delivering good outcomes for customers who hold closed products.
The main challenges firms have identified around closed products include:
- Gaps in monitoring data
- Where a firm can’t fill gaps in its records, they should take additional steps to mitigate the risk of harm to consumers – for example through enhanced outcomes testing.
- Fair value in closed products
- Firms must assess, and be able to demonstrate, that their closed products provide fair value to customers.
- The FCA understands some legacy products might pay higher charges than they would for open products. The FCA does not necessarily expect firms to re-price products or to repeat underwriting in every case if conditions such as life expectancy or economic conditions have changed. However, if a firm could have reasonably known that its assumptions were significantly wrong at the time a product was sold, then the FCA will consider if the firm complied with rules that were in place at the time.
- Keeping the customer connection
- Firms will need to test, monitor, and adapt their communications approach for driving the right outcomes for consumers.
- Firms’ capacity for the Duty
- By now, firms should have a clear roadmap to comply with the Duty by the deadline for closed products which is 31 July 2024. At this point, all products will be inside the scope of the Consumer Duty. Firms should have reflected on what lessons they learned in the run up to the first deadline, filled in the gaps on open products, and made sure closed products will comply by the deadline.