The Financial Conduct Authority has warned that some advice firms have taken a “superficial” or “over-confident” stance to the Consumer Duty requirements, just months ahead of the new rules coming into force.
The FCAs multi-firm review published on Wednesday, in which the watchdog considered the implementation plans of larger ‘fixed’ firms it believes are substantially in scope of the Consumer Duty, showed varying degrees of readiness for the new rules.
While many of the plans it reviewed showed that firms have understood and embraced the shift to focus on consumer outcomes, the review also found that some firms may be further behind the curve in their thinking and planning and may need to improve their approach.
The FCA said some plans were not clear what the basis was for prioritising some implementation work ahead of other aspects, while others have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate.
It also found that to implement the Duty on time, many firms still need to work and share information with other firms in the distribution chain.
The Consumer Duty will come into force for new and existing products or services that are open to sale or renewal on 31 July 2023. For closed products or services, the rules will come into force on 31 July 2024.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The Consumer Duty will bring about a step change in the way financial services firms treat their customers and we welcome the work firms are doing to implement it. Given the scale of the reform, we recognise that some firms need to make significant changes. For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new Duty.
“Firms will also see the benefits of the Duty, with increased trust in the sector, more flexibility to innovate and in time, fewer rule changes.”
Over the remaining six months of the implementation period, the FCA wants firms to focus on prioritising effectively, with a focus on the areas that will make the biggest impact on outcomes for consumers; make the changes needed so consumers receive communications they can understand and products and services that meet their needs; and work closely with commercial partners to ensure they are all delivering good customer outcomes.
Roddy Munro, head of propositions specialists at Quilter, said the review highlighted “how seriously” the regulator is taking the Consumer Duty.
Munro said: “Time is ticking in terms of getting processes and actions in place and this review highlights that as an industry we cannot take our foot off the gas.
“Given the professionalisation of the advice industry in the last decade and an increasing focus on value, many will be in a good starting position. It is this value that is so important, and it should not be confused for price. Clients and their families will value different elements of advice at different points over their lifetimes. As such we cannot look at price in isolation, but as part of the wider picture when evidencing value to clients. This Duty, therefore, presses home the point of having quality data collection for each product and service and ensuring the correct metrics are in place in order to remain compliant. We cannot rest on our laurels that we do much of this already.”
While the FCA has outlined best practice it has stopped short of being overly prescriptive. However, Munro said this should “not be confused with a lack of certainty” and said detail and accountability will be key, with firms expected to be clear about who is leading the programme, timelines and information on how the Duty will be embedded within company culture.
Munro added: “We have moved to an era of outcome-based regulation and as such providers and advisers need to take what they believe are the necessary steps to evidence good customer outcomes and fair value. This means doing a thorough gap analysis of the products and services you offer, assessing your client communications and creating a customer centric culture within your business.
“While these internal plans should be well advanced, it is necessary that providers and advisers do not silo themselves and leave themselves open to risk of third-party non-compliance. We all play different roles in the value chain and rely on a variety of suppliers and thus a collaborative approach is required to ensure we achieve good customer outcomes. Knowing who the product manufacturers are, how a product or service is distributed and who owns the client relationships, as well as what roles others play will be crucial to make the Consumer Duty the success we want it to be.”
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