The Consumer Duty is the FCA's answer to its stated aims of setting a higher expectation for the standard of care that firms give consumers. The FCA recognises that this will require a "significant shift" in culture and behaviour for "many firms with the overarching principle that a firm must act to deliver good outcomes to its clients. But simply this consumer Principle requires firms to be open and honest and transparent. Provide fair value, empower customers to access, understand and use their products, create environments for good decision making, and help customers realise their financial objectives.
The FCA introduced cross cutting rules that require three behaviours of firms that will apply across all the existing rules and guidance. These cross cutting rules are that firms take all reasonable steps to avoid causing foreseeable harm to customers, take reasonable steps to enable customers to pursue their financial objectives and to act in good faith.
The Consumer Duty has four outcomes, representing a firm's conduct.
- The first outcome is Communications; which is defined as an understandable easy to follow communication that genuinely help customers make informed decisions.
- Second outcome on Products and Services is a user friendly products and services that are designed to meet customer's needs and offer fair value taking behavioural biases into account.
- The third outcome Consumer Support, firms must offer appropriate support to the customer when they need it and a customer service that works for all customers across all mediums and platforms. Taking into account vulnerability concerns.
- The fourth outcome, is about Price and Value meaning fairly priced products and services should deliver true value to customers
So what will these high level consumer duty considerations mean for firms?
Well, at the very least firms will need to evidence and validate their approach to consumer outcomes. Consumer duty will require increased oversight and governance in its implementation, ongoing monitoring. It will involve an increased board responsibility on consumer duty and all the aspects that are applicable to that.
The implementation plan needs to be effective and ready for approval or inspection by the end of next month. Following on from that by the end of April 2023, manufacturers need to have completed reviews of existing products and share that information with distributors. And soon after that on 31st of July 2023, the new consumer duty rules come into force. FCA regulated firms should prioritise their preparation for the Consumer Duty rules in order to avoid the associated penalties in the future.
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