The Importance of The New Consumer Duty
The new Consumer Duty, implemented by the Financial Conduct Authority (FCA), sets higher and clearer consumer protection standards across financial services. It requires firms to put their client’s needs first by providing products and services that meet them, offering fair value, and delivering clear communications and customer support.
This duty applies from 31 July 2023 for existing products and services, and it includes a new Consumer Principle which requires firms “to act to deliver good outcomes for retail clients”. Its requirements are explicit and apply to all consumers who purchase products across all financial sectors.
Broad Standard Of Behaviour
This duty comprises several integral parts, each designed to ensure that firms deliver good outcomes and maintain a healthy relationship with their clients. Consumer Principle establishes the broad standard of behaviour that firms need to uphold. It serves as the foundation upon which all other aspects of the Consumer Duty are built.
Cross-Cutting rules further clarify the Consumer Principle by outlining three overarching requirements. These requirements elucidate how firms should act to achieve positive results and apply them to all areas of a firm’s conduct. They also serve as a guiding light to help firms interpret the ‘four outcomes’.
Four Outcomes
These outcomes offer a more granular set of rules and guidance on firm conduct in four critical areas that define the firm-consumer relationship.
Governance of Products and Services
This pertains to how firms manage their offerings and ensure they meet consumer needs.
Price and Value
This aspect focuses on how firms price their products or services, ensuring they offer value for money.
Consumer Understanding
This part emphasises a firm’s responsibility to ensure consumers understand the products or services they purchase.
Consumer Support
This outcome relates to the level of support and assistance firms provide to their consumers.
No Retrospective Effect
The new Consumer Duty does not have a retrospective effect. That is, it won’t apply to actions taken by firms before its implementation. The Financial Conduct Authority (FCA) and the Financial Ombudsman Service concur that firms’ conduct should be evaluated based on the rules and standards at the time of the action.
10 Essential Consumer Duty Questions Firms Need To Answer
Identifying any gaps or areas that need improvement:
1. Product and service design
Are your products and services well designed to meet the needs of your target market, and do they perform as expected? Have you conducted any testing?
2. Potential harm
Do your products or services have features that could harm groups of clients with vulnerability characteristics? If so, what changes are you making to their design?
3. Fair value assessments
What actions have you taken as a result of your fair value assessments, and how are you ensuring these actions effectively improve consumer outcomes?
4. Monitoring fair value
What data, management information (MI), and other intelligence are you using to monitor the fair value of your products and services on an ongoing basis?
5. Communication effectiveness
How are you testing the effectiveness of your communications? How are you acting on these results?
6. Adapting communications
How do you adapt your communications to meet the needs of vulnerable clients, and how do you know these adaptations are effective?
7. Client support assessment
Have you assessed whether your client support meets their needs with vulnerability characteristics? What data, MI, and client feedback are you using to support this assessment?
8. Post-sale support
How have you ensured that the quality and availability of any post-sale support you provide is as good as your pre-sale support?
9. Understanding of the Consumer Duty
Do all individuals in your firm – including those in control and support functions – understand their role and responsibility in delivering the Duty?
10. Risk identification
Have you identified the key risks to your ability to deliver good client outcomes and put appropriate mitigants in place?
These questions should serve as a guide for firms’ self-assessments. Firms can also expect to be asked similar questions in their interactions with us. This process ensures that the implementation of the Consumer Duty is robust and effective.
About Goldmine Media
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