As anticipated, the FCA has issued a press release, and has published its Policy Statement PS22/9: A New Consumer Duty with the accompanying Finalised Guidance FG 22/5. The Policy Statement and finalised Guidance provide clarity on the FCA’s expectations of firms to concentrate on what their customers need; the FCA expects this will lead to more flexibility for firms to compete and innovate in the interests of consumers. We will provide further details in the coming weeks.
There appears to be no change to the structure of the Duty itself (so a new high-level Principle, three ‘cross -cutting’ Rules, and sets of Rules and Guidance covering the four desired outcomes), with the impact of the new Duty being described as something that “will lead to a major shift in financial services”.
The Consumer Duty sets higher and more defined standards of consumer protection across financial services sectors and requires firms to put their customers’ needs first. The Duty is built upon a customer centric foundation and the overarching principle that ‘a firm must act to deliver good outcomes for retail customers’; including new Rules which firms will have to follow. The Duty will mean that consumers should receive clear communications they can understand, products and services that truly meet their needs and offer fair value, and get the customer support they need, when they need it.
The Duty forms part of the FCA’s transformation toward becoming a more assertive and data-led regulator. With firms assessing how they are meeting their customers’ needs, the FCA believes it will be able to quickly identify practices that do not deliver the right outcomes for consumers and take appropriate action before practices become entrenched that lead to harm arising as a market norm. Perhaps, though, the only way the FCA will “…be able to quickly identify practices that don’t deliver the right outcomes…” is if they actually ask firms for metrics, data and information about how they are assessing that they are meeting their customers’ needs. This may lead to more of the emerging trend of follow-up e-mails and information requests such as one issued recently, following up on the GI Intermediaries Portfolio Letter.
Firms will have 12 months to implement the new rules for all new and existing products and services that are currently on sale. The rules will be extended to capture ‘closed book’ products 12 months later, to give firms more time to align these older products with the new standards. It will be interesting to see which definition of a ‘closed book’ the FCA employs, particularly taking into consideration the words “…that are no longer on sale…”; this perhaps indicates an actual ‘closed book’. For new and existing products or services that are open to sale or renewal the rules come into force on 31st July 2023. For closed products or services the rules come into force on 31st July 2024.
The FCA will work with firms during the implementation period, including hosting a series of industry events, to ensure that firms are implementing the Duty effectively and in line with the FCA’s expectations.