FCA Consumer Duty Guidance
Jan
This article provides information on the Consumer Duty and offers suggestions for complying with the rules and outcomes. We have put the FCA Consumer Duty guidance into simple to read sections and have included controls and tools for adherence to the Duty requirements.
What is The Consumer Duty?
The FCA’s Consumer Duty (“the Duty”) came into force on the 31st of July 2023 after the publication of the final rules and guidance. Regulated firms with retail market business are subject to the Duty and have obligations under the new rules. Firms who communicate or approve financial promotions addressed to, disseminated to or received by a retail customer are also bound by the rules.
The Consumer Duty rules and outcomes have been designed to ensure firms deliver a higher level of protection and security to retail customers. The Duty demands clearer standards, as well as the fair treatment of retail customers through product governance and fair value assessments.
Who Does The Consumer Duty Apply To?
You may be wondering “does the Consumer Duty apply to my business?”
The Duty applies in relation to a firms’ retail market business. It is also relevant where the firm communicates or approves financial promotions which are addressed to, or disseminated in such a way that they are likely to be received by, a retail customer. The Principle 12 and PRIN 2A obligations applied to new and existing products or services that were open to sale or renewal from July 31st 2023. Where applicable, the rules applied to closed products from July 31st 2024.
The Duty applies across the whole distribution chain. From product and service origination and design, through to distribution and post-sale activities. The ‘distribution chain’ references all firms involved in the manufacture, provision, sale and ongoing administration and management of a product or service to the end retail customer.
Consumer Duty Outcomes & Rules
The Duty itself comes with a host of expectations and rules that are set out under the PRIN 2A module of the FCA Handbook. Alongside the guidance and requirements, there is an additional FCA Principle for Business and Conduct Rule. Together these set out the standard of behaviour expected of firms. The cross-cutting rules and outcomes apply to all retail market business and retail customers, from product and service origination through to distribution and post-sale activities.
- PRIN 2A – Comprised of the cross-cutting rules, four outcomes and Consumer Duty guidance. PRIN 2A sets out the rules and requirements firms must adhere to when they have obligations under the Duty.
- Principle 12 (Consumer Duty) – A firm must act to deliver good outcomes for retail customers – The additional Principle for Business specified by the FCA reflects a general expectation by the regulator on how firms should conduct their retail market business. The expectation is conduct to a standard which ensures an appropriate level of protection for retail customers.
- Conduct Rule 6 – Act to deliver good outcomes for retail customers – To ensure compliance with this rule, a firms’ employees should adhere to the cross-cutting rules. This means they must act in good faith towards and avoid causing foreseeable harm to retail customers. The firm should also ensure employees enable and support retail customers to pursue their financial objectives.
Complying with The Consumer Duty
There are a series of policies and procedures you will need to develop to aid compliance with your Consumer Duty obligations. If you read through PRIN 2A and the associated FG22/5 final non-handbook guidance for firms, you will find the rules and outcomes that you are required to adhere to. As with most FCA rules, there is a requirement to have policies and controls in place to ensure compliance with the Consumer Duty.
Consumer Duty Policy
The Consumer Duty Policy template should set out your objectives and obigations for complying with the Consumer Duty. This policy should be a reference document for your business and employees that sets out your aims, intent and processes for adhering to the rules and outcomes. It should set out the cross-cutting obligations, four consumer outcomes and how these interact with Principle 12 and Conduct Rule 6.
Product Governance
The Product Governance Approval Process describes the stages used to approve retail products and services for consumer use. Firms are required to design and deliver products and services that have the customer and their best interests at their core. This process document and associated product governace policy should set out the retail product’s journey; from design, through to approval. This includes, but is not limited to identifying the appropriate target group and defining distribution channels for the product.
Outcome Monitoring Framework
The Outcome Monitoring Framework policy and procedures should implement a set of templates for testing retail customer outcomes. This means establishing a review and monitoring framework to examine and evaluate the outcomes received by retail customers. The frequency of outcome monitoring and what information must be collected should be identified and documented to ensure adequate and effective data. The procedures should also detail how the firm will report to the governing body on an annual basis and any actions to be taken should a retail product or communication result in poor outcomes.
Interactions Between Principle 12, The Outcomes and Rules
The FCA Principle 12, the cross-cutting obligations and four consumer outcomes come together to form the foundation of the Duty. In the Handbook, the FCA provide guidance for how the three components of the Duty interact with each other.
- The cross-cutting obligations define how firms should act to deliver good outcomes for retail customers.
- The cross-cutting obligations exhaust what is required under Principle 12.
- The outcomes rules help to define what is required by Principle 12 and the cross-cutting obligations, but do not exhaust those rules.
Consumer Duty Template Toolkit
If you are looking to develop a professional, compliant set of templates and policies in this area, why not consider using our Consumer Duty Template Toolkit. With more than 9500 firms using our documents, you can customise the content and incorporate 12 essential consumer duty policies and tools to aid compliance with the PRIN 2A rules.
Designed for any FCA regulated business with Principle 12 and PRIN 2A obligations, these customisable templates give you a firm foundation on which to build a compliant product governance program. With tools and templates for implementing a product governance approval process and outcome monitoring framework, why reinvent the wheel!
- 12 Essential Consumer Duty Templates
- Fully Customisable Content
- Suitable for all Business Types
- Aligned with PRIN 2A Rules
- Instant Download After Payment
Monitoring Consumer Duty Compliance
Consumer Duty assessment and monitoring has been a key focus for the FCA since it came into force last year. The regulator has been completing monitoring waves across a range of sectors to assess compliance with the Consumer Duty rules.
The second wave of monitoring sampled 634 FCA regulated firms. Most were small-medium businesses from 6 sectors. The sectors included retail finance, insurance intermediaries, credit brokers and wealth management firms.
Questions included in the monitoring of Consumer Duty processes included: –
- Do you have a named person/team responsible for ensuring you meet the requirements of the Duty?
- Have you conducted a fair value assessment of your existing products and services?
- Have you assessed the end to end consumer journey?
- Have you identified the target market for each of your products and services?
- Have you assessed the needs of consumers with characteristics of vulnerability?
Consumer Duty Failures and Improvements
Visit the FCA Consumer Duty page to see a full publication of the review assessments, outcomes and improvement suggestions. We have noted just a few of the FCA’s findings and suggestions below.
- “Consumer duty programme reviews and outcomes not always discussed at Board level. Firms need to ensure that the focus on good customer outcomes is understood at all levels. This includes in a firms’ strategies, leadership, and people policies.”
- “Better data and monitoring strategies are required. Firms should not be complacent and assume that they can just repackage existing data. Firms must think seriously about what information they need to really” understand their customers’ outcomes and issues they may be facing.
- “Failures in identifying weaknesses in processes for tracking vulnerable customers. Firms should be able to identify where particular groups of customers, especially those that are vulnerable, receive poorer outcomes than other customers and take action to address this.”
