Is the Consumer Duty really so new?​

We look at the latest iteration of the FCA’s new Consumer Duty and consider whether firms will need to think and act differently once it is implemented.

Not a huge amount has changed in the latest iteration of the FCA’s new Consumer Duty proposals, though the draft guidance gives a real flavour of how important this duty is going to be for firms going forwards. The duty to ‘act to deliver good outcomes for retail clients’ is underpinned by three key outcomes that span products and services:

  • Price and value
  • Consumer understanding
  • Consumer support.

The sub-text is clear – there will be nowhere to hide for any firms who think that light touch governance will pass muster.

Product governance refresher

The FCA has taken the opportunity to reinforce themes that have come up consistently in their wider product governance work and where they feel the industry could be doing better: meeting a genuine customer need, knowing your target market (including who isn’t the intended target market), and distribution strategy; considering price and value; ensuring customers have the information they need to make effective decisions; and testing to provide evidence you are meeting these requirements where you are unsure, particularly if products are complex.

In the asset management space, much of this will be very familiar from the Asset Management Market Study remedies, PROD and MIFID II. Structured product providers have been working with this framework for even longer.

Improving consumer understanding – a fundamental aim

It does feel as though the FCA are expecting a step change in how seriously firms take these responsibilities. The new Consumer Duty replaces RPPD and will be embedded in the Senior Managers’ Compliance Regime, so boards will have oversight of progress against the four outcomes. Firms will need to demonstrate that they consider customers at each step of the design and management of products and services.

As well as being clear, fair and not misleading communications need to be understood ‘by the average customer intended to receive the communication’. There is a clear assumption here that firms understand the make-up of the product’s target market and the most appropriate way to communicate with their ‘average’ customer. Customer understanding becomes particularly important where products are complex or where firms need customers to take action. Firms need to think carefully about customer journeys and the information needs of customers through a product lifecycle.

So not entirely ‘new’, but definitely challenging the industry to step up a gear in meeting those expectations. Some firms will be doing some of this well, but how many firms will be able to answer a resounding ‘yes’ to the exam question: Do you really know your customers and talk to them in a language they understand? And can you prove it?

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