These are the key questions that were raised during the recent FCA Consumer Duty webinar, with a precis of the FCA’s answers.
- How is this different to TCF and will this replace TCF outcomes?
- TCF has done a lot of good – it’s still relevant but results have not been consistently good. The FCA has seen unacceptable levels of consumer harm, so TCF hasn’t worked – there are still consumers making poor choices as a result of entrenched poor practice amongst firms. This is perhaps TCF plus; a ‘reset of the overarching regulatory framework’. The FCA wants enforceable Rules rather than Guidance.
- Isn’t this a combination of what we’ve already got? What is the gap we’re trying to fill here?
- This is different to Principle 6 and 7; new cross-cutting Rules are proposed. The FCA is trying to build on some of the key sectoral investigations to help firms get it right first time. PROD Rules are being used as a basis for the overall thinking for the whole market. Also, other insurance-based themes have been used a basis for some of the proposals. Clearly the FCA sees a good deal of harm in the marketplace and wants to fix this.
- What is the difference between these new proposals and the ‘duty of care’.
- The important thing is that these proposals require firms to act in good faith, to avoid reasonably foreseeable harm and to allow customers to get the right financial outcomes. Duty of care can have a wider meaning, so this is perhaps a duty of care with a different identity.
- What is the difference between this and the SM&CR duty of responsibility.
- Current expected SMF standards flow from FCA Rules and requirements – but SMFs will be expected to ensure that new standards are met across their areas of responsibility.
The FCA will seek evidence about how firms are meeting the required standards of the Consumer Duty. Firms need to think about how they can develop metrics to show how they meet the Duty (as with TCF MI). So, think about, develop, collect the MI, then use it and document the outcome of what you did so you can demonstrate that to the FCA if they ask.
- Does this mean that there will be a more onerous or different approach to Supervision?
- The FCA sees this as an evolution of supervision, not a revolution. The FCA has always wanted to see the right outcomes for consumers. This is a continuation of a journey and, overall, a ramping up of the pressure; TCF was an outcomes-based mindset but was founded on guidance. The Consumer Duty is an evolution, but one based on enforceable Rules. Firms need to take reasonable steps to allow customers to make the right decisions and to get the right products; make consumers better able to make the right decisions.
- How can firms get the balance right between doing the right thing for the customer but also for the firm
- This new Duty is not intended to stop firms pursuing profit or acting in their commercial interests / obligations, but firms must do that in a way that achieves good customer outcome. Do things that customers would reasonably expect, even if they don’t necessarily like it. This is not at odds with commerciality; it can be compatible, but you need “to do right by the customer”.
- Would FCA expect firms to switch customers to cheaper credit products?
- What the FCA is trying to do is to create an environment where customers can make right decisions, where firms “take all reasonable steps to allow customers to achieve their financial objectives”. Provide clear information about the products that are available and most importantly look at and monitor the outcomes that are being achieved – are they good outcomes?
(UKGI note – there was a good deal of reference to focussing on outcomes and end to end processes, but the FCA deliberately explained that they would not be trying to tell firms what they actually have to do; instead the FCA talks about continuous testing of outcomes.)
- How can firms ensure that their communications are understandable? How can everything be understandable to all?
- The FCA explained that there is a difference between understandable and understood. Understood cannot be achieved in every case, but communications need to be clear, understandable, and take into account diverse needs and sophistication of recipients – even perhaps ‘all things to all people’. The message, again, is to understand the target market and design communications like you would design products and to test the outcome.
- How do firms that don’t have a relationship with the end customer ensure that they act in the customer’s best interests?
- The FCA used ‘circumstances where there are a number of firms in the chain’ as an example. An MGA / Underwriting Agency might be involved in product design, pricing, impacting fair value, might create documents that might not be clear etc.
- Value assessment – “how do we define fair value and how do we measure it – how does this tie in with work on GI pricing practices”
- Products must be fit for purposes and the price must be reasonable based on the potential expected benefits. Factors to consider might be include the nature of the service / product, total price.
- To what extent are SMEs included?
- Almost all of them – but the Consumer Duty rules won’t apply to all types of firms, but certainly the very great majority of small businesses.
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