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Last December, the Financial Conduct Authority announced plans for a new Consumer Duty. What are the FCA’s proposals, and what will your firm need to do differently as a result?

Announcing its plans for the new Consumer Duty, the Authority launched a consultation to refine its initial ideas. The second consultation, which closed on 15 February, built on earlier feedback from industry and consumer groups. It sets out more detailed proposals on the rules the FCA plans to implement to “tackle the causes of harmful practices”.

What is the FCA’s Consumer Duty?

The Consumer Duty is actually a number of rules and measures, rather than a single duty. These measures form part of the FCA’s move to an “outcomes-based” approach that focuses on the consumer, rather than creating a tick-box style list of requirements to meet.

Who does the Consumer Duty apply to?

The FCA proposes that it applies to retail customers (that is, all customers except professional clients [such as large corporate entities and government bodies] and eligible counterparties). The latest consultation asked for feedback on widening this scope, but as it stands, it covers retail customers as defined by the FCA.

What is the aim of the Consumer Duty?

Broadly, the new consumer duty aims to make the retail customer experience better, and with better outcomes.

In the words of the FCA:

“The new rules will require firms to focus on supporting and empowering their customers to make good financial decisions and avoiding foreseeable harm at every stage of the customer relationship. Firms will have to provide consumers with information they can understand, offer products and service that are fit for purpose and provide helpful customer service.”

What does the FCA’s Consumer Duty say?

As part of the Duty, the FCA proposes adding a new Consumer Principle – that businesses should act to deliver good outcome for clients – to its Principles for Businesses, to supersede current Principles 6 and 7.

Underpinning this Principle are three cross-cutting rules that give more detail on what firms should do to make these good outcomes more likely. Businesses will have to:

• Avoid causing customers foreseeable harm
• Act in good faith towards them
• Enable customers to pursue their financial objectives

Continuing its outcomes-led approach, the FCA includes four outcomes in the new Consumer Duty. These relate to:

• Product and service governance – which includes having product approvals, a clear target market and appropriate distribution channels
• Consumer understanding – where the FCA expects firms to focus on the outcomes of their communications, rather than just the existing “fair, clear and not misleading” requirement for customer communications
• Price and value – connecting the price paid by a customer and the benefits they can expect from a product or service; focusing on the concept of “fair value”
• Consumer support – ensuring that firms provide appropriate levels of support that enable customers to use products as anticipated, without facing unreasonable barriers

What does the FCA’s Consumer Duty hope to achieve?

The Duty aims to ensure that firms “focus on getting things right in the first place” by:

• Always putting good consumer outcomes at the heart of their business
• Focusing on the diverse needs of their customers at every stage

As a result, the FCA hopes that consumers will be equipped to make better financial decisions, and have more trust in financial services firms.

An infographic on the FCA’s website summarises the Consumer Duty’s objectives and desired outcomes.

What should firms do to prepare for the new Consumer Duty?

1. Prioritise outcomes as well as innovation. The FCA says that while it sees “a range of good practice by firms in retail sectors with firms innovating to meet the needs of consumers”, it also sees that firms are “not consistently and sufficiently prioritising good consumer outcomes”. Think about the ways your products and services deliver the outcomes your retail customers need.
2. Focus on getting it right, without needing tick-box regulation. The regulator believes that its regulations and supervisory tools have tackled poor practices, but wants to see “all firms getting it right in the first place”.
3. Explore ways that you can increase standards and your competitiveness simultaneously. The FCA believes that “High standards of conduct should be advantageous for individual firms and the industry at large”.
4. Revisit your financial promotions. The Consumer Duty aims to ensure that businesses “consider the needs of their customers…at every stage of the product or service lifecycle”. This means from financial promotions, through to your sales process and your service delivery, and it requires a particular focus on your vulnerable customers to ensure your communications deliver what they need.

What does the Consumer Duty mean for financial promotions?

As financial promotions will form an intrinsic and central part of firms’ response to the Consumer Duty, it’s worth looking at them in a little more detail. The FCA hopes that its new Consumer Duty will “raise industry standards by putting the emphasis on firms to get products and services right in the first place.”

The financial promotions used to provide consumers with information on those products and services forms a core part of this.

Many of the elements of the Duty focus on communications and expectations:

• Consumers “getting the information they need at the right time and in a way they can understand”
• Consumers protected from “unreasonably high fees and charges”, which has implications for the ways those fees are communicated
• Products and services have “terms and features that match the needs of the consumers they’re for” – again, something where expectations and communications play a key role

It’s worth reviewing your existing financial promotions and the process you use to create them, to ensure they meet the requirements of the consumer duty.

Do your financial promotions go through the required compliance approval process to ensure they meet the FCA’s standards? Do they deliver clear and complete information that enables consumers to make informed decisions?

Focus particularly on vulnerable customers. The FCA calls out the need to consider customers with “characteristics of vulnerability”, building on existing guidance. Do your communications and financial promotions make the grade when it comes to this element of the market?

What is the FCA Consumer Duty timeline?

The Authority will now be reviewing the results of the consultation which closed on 15 February, to fine-tune and finalise the Consumer Duty measures. The FCA has said that it expects to confirm any final rules by the end of July 2022.

Prepare for the FCA’s new Consumer Duty

If you’re responsible for producing financial promotions, for creating financial products or services, or providing customer support to retail financial consumers, it’s worth familiarising yourself with the core aims of the Consumer Duty. Get a step ahead, by making sure your approach and your financial promotions meet the aims of the new Duty.

Our Marketing Distribution Platform, Enable, includes workflow tools that will streamline your financial promotions approval processes. This will help you save time and money while reducing your risk by ensuring all content is compliant and approved before it can be used. To find out more, contact our team today.