Introduction
The FCA has set out the final rules and guidance for new Consumer Duty. These rules are expected to advance consumer protection and competition objectives. The Consumer Duty (The Duty) sets a higher clearer standard by requiring firms to ensure their products and services are fit for purpose and offer fair value to help consumers make effective choices.
The Duty is comprised of two components and four outcomes. The two components are:
(i) Consumer Principle that reflects the overall standard of behaviour the FCA want from firms, and
(ii) The Cross-Cutting rules that will inform and help firms interpret the four outcomes. They set out how firms should act (proactively and reactively) to deliver good outcomes for customers.
The four outcomes which are a suite of rules and guidance
the governance of products and services;
price and value;
consumer understanding; and
consumer support.
The Duty will also create a fairer and more consumer‑focused playing field on which firms can compete and innovate in pursuit of good consumer outcomes.
The Duty does not have a retrospective effect and does not apply to past actions by firms. Actions taken before the Duty comes into force are subject to the rules that applied at the time.
Scope
The Duty applies to the regulated activities and ancillary activities of all firms authorised under the Financial Services and Markets Act 2000 (FSMA), the Payment Services Regulations 2017 (PSRs)and E-money Regulations 2011 (EMRs), in respect of products and services for prospective and actual retail customers.
Retail Customer - The retail customer definition aligns broadly with the scope of relevant regulations in each sector.
Distribution Chain - all firms involved in the manufacture, provision, sale and ongoing administration and management of a product or service to the end retail customer.
Wholesale Market - firms in the wholesale market, even if they do not have a direct relationship with retail customers.
Implementation Period
The rules introduced come into force in a phased manner:
for new and existing products or services that are open to sale or renewal the rules come into force on 31 July 2023.
for closed products or services, the rules come into force on 31 July 2024.
Governance
The Duty requires firms to ensure that acting to deliver good outcomes is reflected in their strategies, governance, leadership, and people policies, including incentives at all levels.
A firm’s board or equivalent governing body is responsible for ensuring that the Duty is properly embedded within their firm, and we will hold senior managers accountable through the Senior Managers & Certification Regime (SM&CR).
The FCA has asked firms to have a champion at board (or equivalent governing body) level who, along with the Chair and the CEO, ensures that the Duty is being discussed regularly and raised in all relevant discussions.
Monitoring
A key part of the Duty is that firms assess, test, understand and are able to evidence the outcomes their customers are receiving.
Hence the FCA has laid out the following rules for firms:
monitor and regularly review the outcomes their customers are experiencing to ensure that the products and services that firms provide are delivering outcomes consistent with the Duty.
identify where customers or groups of customers are not getting good outcomes and understand why.
have processes in place to adapt and change products and services, or policies and practices, to address any risks or issues identified and stop it occurring again in the future.
How CSL Can Help
CSL has a wealth of expertise advising clients on the Consumer Duty.
We have the experience and expertise to deliver pragmatic business centric solutions to keep you compliant.
If your business requires advice, support, and solutions please reach out to CSL today.
0203 488 4612