Prioritisation and proportionality for Consumer Duty

As firms started the year grappling with internal action plans aimed at meeting the impending Consumer Duty deadlines, we held a webinar that provided insight on The Investment Association’s thinking and talked about some of the practical challenges firms face – including the thorny issue of Consumer Understanding, which runs through every aspect of the Duty. If you weren’t able to tune in then read on for a snapshot of what we discussed.

A screenshot of a live webinar: consumer duty, practical advice

Consumer Duty prioritisation

Last week, the FCA announced the results of an initial review into firms’ implementation plans for Consumer Duty and set out plans for supporting firms as they embed their plans in the run up to July.

While the FCA welcomed the efforts that firms are making to respond to the new Consumer Duty and engage with the substantive requirements, there were also plans that fell short of what the FCA expects, as they suggested that “some firms may be further behind in their thinking and planning for the Duty. This brings a risk that they may not be ready in time, or they may struggle to embed the Duty effectively throughout their business.”

At an overall level, the FCA identified prioritisation as a key area of focus – a theme that our panel clearly highlighted during our webinar, alongside the concept of proportionality. Embedding requirements and working with other firms to facilitate compliance were also listed as areas where firms need to do more.

When it comes to prioritisation, this is central to having robust plans in place to meet both the July deadline and the ongoing requirements of the Duty. The Wisdom Council has been helping firms to build frameworks for deciding how to prioritise testing requirements underpinning the Consumer Understanding outcome. Things you might want to consider for your prioritisation framework and testing schedule:

  • Does a product have significant representation from retail investors?
  • Have you seen a volume of complaints around a certain product?
  • Consider first anything that’s driving a call to action for the end investor – that communication should be a key starting point. Corporate action letters are a good example of this.

The Investment Association’s Consumer Duty workstreams

The IA is working closely with its members to build industry consensus where it can to support firms as they tackle the requirements of the Duty. The IA has three working groups looking at Consumer Duty. In line with the prioritisation questions from above, it is developing an Implementation Best Practice Guide.

The Consumer Understanding working group is planning to expand the Fund Communication guidance, initially issued in 2019. The IA will be working with The Wisdom Council on some challenging areas of language and understanding, with the aim of sharing this with firms by late Spring.

Another workstream is looking at products and services, price and value. This workstream has reviewed the differences between PROD and PRIN rules. The IA has set up a cross-industry group, with other trade bodies, to develop a template for manufacturers and distributors to share information, this will be a build on the EMT and hopefully be published in April.

The final workstream will consider monitoring, reporting and governance, with an aim to develop guidance on board reporting and Board Champions. There’ll be an FAQ on what a Board Champion is and what they are responsible for, the details of which will be released later in the year. In the meantime, the expectation is that Board Champions will be ensuring firms are on top of implementation and staff training plans.

How much should firms be doing?

There’s certainly a lot that firms could and should be getting on with. The extent to which firms need to dedicate time and resource to the Duty will differ, however, depending on the size and shape of the business. The FCA recognises the concept of proportionality – though there is no room for complacency.

Where a firm sits in the value chain and what influence it has over the final outcome for consumers, should all be factors to consider as you look to prove your compliance with the Duty.

“At its heart Consumer Duty is a culture shift, the regulator wants to get away from the mandate of Treating Customers Fairly, to a principle of treating the target market well and being able to demonstrate it.”

While there’s much to do, being measured and strategic in your approach is sensible. And there are third parties that can help – the IA will be releasing its guidance in the coming months, and The Wisdom Council can help you get your testing framework in shape. Please use the contact form, below, if you’d like to find out more.

Finally, don’t forget that the FCA is publishing regular updates and clarification on its site that can be useful to firms.

To watch the webinar back in full, it’s available online.

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