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Consumer Duty Background

With the deadline for CP21/36 consultation just days away, the FCA’s plans for a New Consumer Duty won’t come as a surprise to many regulated firms. The proposed introduction of a new Consumer Principle reinforces the regulators expectation for firms to ensure good outcomes for their retail customers.

Consumer Duty is due to come into effect in April 2023 and is undergoing a second consultation which will close on the 15 February 2022. Finalised rules are expected July 2022 leaving a 9-month period in which firms will be required to implement:

  • A new Consumer Principle that provides an overarching standard of conduct
  • A set of crosscutting rules, and;
  • Outcomes that support the Consumer Principle by setting expectations for
    firms’ cultures and behaviours

The finalised rules will require firms to raise their standard of care towards customers, prioritise consistent positive consumer outcomes and ensure consumer interest remain central to business activities.

The message is clear, firms must consider customer care across the business and the very heart of their business activities and the way in which they act as a business, rather than implementing the new rules as a series of steps and processes under a programme of change. It is likely this approach will lead to positive and longer lasting effects.

Principle 12

The rules will be governed by the introduction of new Principle – ‘A firm must act to deliver good outcomes for retail customers’ and will bring together four outcomes and three cost cutting rules.

The FCA considers that this new Principle will be at a higher standard than Principles 6 and 7, and therefore where the Consumer Principle applies, Principles 6 and 7 will no longer apply.

The package of measures, consolidated and enforced under this new Principle will give the FCA greater powers against non-compliant firms since regulatory censure and enforcement is referenced back to underlying principles.

Crosscutting

The FCA expects firms to self-evaluate and analyse the impact their business activities, products and services have on their customers and firms must take action to ensure they deliver good outcomes for the customer. The cross-cutting rules require firms to act in good faith, support the customers financial objectives and avoid foreseeable harm to customers.

Outcomes

Raising the standards across 4 interrelated customer outcomes will require:

  • The extension of governance around product design.
  • Considering the price and value of a product and focussing on the price the customer pays and the benefits they can reasonably expect from a product.
  • Full customer understanding. Client communications must be fair, clear and not misleading, ensuring customers can make effective, timely, and properly informed decisions.
  • The provision of support to customers, to allow the full use of products as anticipated.
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