STANDARDS OF CARE TO BE SCRUTINISED BY FCA

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Consumer Duty: Sounds a bit like a new tax on advisers, doesn’t it? You’ve probably heard the term floating around in FCA communication, but do you really know how the proposed legislation will impact your firm?

It’s probably better to think of it as ‘your duty to consumers.’ The FCA wants to make the standards of customer care it expects of advisers clearer, to increase the level of consumer protection in retail financial markets.

The regulator is promising us the results of its second consultation on Consumer Duty by the end of the year and we expect the rules to be written into the FCA handbook by July. For many firms, compliance will require a significant culture change, to ensure a greater focus on customer outcomes, so action should be taken now to make sure you are prepared.

What is the new Consumer Duty?

Consumer Duty isn’t an update, it is additional regulation to ensure the products and services you provide are fit for purpose and enable clients to make well-informed decisions.

Basically, the rules require you to put yourself in the consumer’s shoes. It is a package of measures to give firms more certainty about the FCA’s expectations and help you avoid harm by delivering high standards of care from the outset.

The regulations comprise:

  1. The Consumer Principle: An overarching standard of conduct expected of you
  2. Cross-cutting Rules: A set of instructions outlining the cultures and behaviours expected of you
  3. Four key outcomes:
    1. Communications that equip consumers to make effective, timely and properly informed decisions about financial products and services
    2. Products and services that are designed specifically to meet the needs of consumers and are sold appropriately
    3. Customer service that meets the needs of consumers, enabling them to realise the benefits of your products and services. You must act in their interests without undue hindrance
    4. The price of products and services represents fair value.

In Feedback Statement 19/02, the FCA also proposed the introduction of a private right of action for breaches of the principles, including any future addition it might make to Consumer Duty. This will increase the accountability of firms and allow consumers to access redress.

How will your compliance procedures change?

Thankfully, the majority of advisory firms already do their best by clients, however, you will now need to evidence it much more clearly.

To help you comply, we will be measuring the extent to which the proposed rules are embedded into your systems and controls, ensuring the duty is fulfilled from the top down. We will conduct this assessment when we execute projects such as audits, file checks and FCA authorisation applications.

We will be monitoring closely the FCA’s proposed right of action for breaches of the principles and it will need to be incorporated into your policies and procedures.

We will also be ensuring our standard documentation reflects the new legislation and we are aware of how and to whom it applies. For example, our vulnerable client policy has already been amended to incorporate the consultation, placing the onus on firms to adapt their treatment of vulnerable clients.

Act now

The ramifications of Consumer Duty will be wide reaching, affecting your dealings with everyone, except ‘professional clients,’ such as corporate entities and government bodies.

Expect the FCA to monitor and test to ensure firms are acting on Consumer Duty and assessing the impact of their actions. In the first instance, this means we, as compliance consultants, need to apply the guidance to the support we already provide, so you are fully able to understand and fulfil your obligations and where necessary, adapt policies, procedures and processes.

We can hear the collective groan from here at the prospect of more work imposed by the FCA, but this is about achieving the best results for clients. As long as you already have their best interests at heart, it should simply be a case of benchmarking your service against the regulations.

More information about Consumer Duty can be found on the FCA’s website: https://www.fca.org.uk/publications/consultation-papers/cp21-13-new-consumer-duty. For advice about preparing for the new regulations, contact B-Compliant on (0161) 521 8641 or email: [email protected]

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