Putting the consumer at the heart of operations

Broking business March 2022

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We update you on the FCA’s Consumer Duty consultations and anticipated new rules.

The FCA’s second consultation (CP21/36) on the Consumer Duty closed on 15 February. The regulator will publish the policy statement summarising responses, and confirm the new rules, by 31 July this year.  

The underlying principles of, and feedback on, both consultation papers focus on the FCA’s desire to see a higher level of consumer protection in retail financial markets, and to promote vigorous competition in the interest of consumers. It wants to drive a healthy and successful financial services system in which consumers can make informed choices about financial products and services.

Whilst the FCA has observed a range of good practice by some firms, it also notes that firms are not prioritising good consumer outcomes consistently or sufficiently. Poor outcomes drive consumer harm and erode trust in firms and in the market as a whole.


What does the FCA want to do?

The FCA aims to develop a more consumer focused market that provides customers with a more level playing field. It should be a market that truly places consumers at the heart of the operation and designs products, services and interactions around their interests. The regulator believes this will, in turn, enhance the whole market and promote effective competition. It expects the initiative to drive up standards and customer satisfaction, in the pursuit of good consumer outcomes.


What will the Consumer Duty achieve?

The new Consumer Duty will build on previous market interventions and set a high standard of care. It will extend the rules on product governance and fair value, and highlight elements of persistent poor market practice.

It will require firms to focus on good customer outcomes by considering the needs of them all – including those with characteristics of vulnerability – and how these have been met at every stage of the product or service lifecycle.


What are the specific changes likely to be?

The FCA has identified three core elements:

  1. A new Consumer Principle (which replaces current Principles 6 and 7) requiring firms to deliver good outcomes for retail customers.
  2. Cross-cutting Rules setting out how firms should act to deliver these outcomes. It requires them to:
    1. act in good faith
    2. avoid foreseeable harm
    3. enable and support retail customers to pursue their financial objectives.
  3. Rules and guidance relating to the Four Outcomes set to drive better firm-consumer relationships:
    1. Products and services
    2. Price and value
    3. Consumer understanding
    4. Consumer support.

It’s important to note that the new Consumer Duty extends to firms that are involved in the manufacture or supply of products and services to retail clients, even if they don’t have a direct relationship with the end customer. The new proposals will therefore have a wider impact on firms and the market than we have previously seen.


What happens next?

The FCA expects to publish the policy statement summarising responses and to make new rules by 31 July this year. Firms will have until 30 April 2023 to implement the new requirements.

In the next issue of Broking Business, we will explore the governance and operational control changes insurance intermediaries will need to make to meet the expectations of the new Consumer Duty. In the meantime, please contact our Governance, Risk & Control Assurance team if you have any questions.