Hot on the heels of the BBC’s hit series Line of Duty, the FCA has its own Duty – “Consumer Duty”. And while the FCA’s latest consultation has a few less plot twists, it does try to keep up with the number of acronyms (17 set out in the appendix) and future series are guaranteed – as the FCA work towards new rules in 2022 which look to increase the level of responsibility that all parties involved in providing advice and investment services have to retail clients.

The consultation

The consultation, which is due to close on 31 July, proposes the introduction of a Consumer Duty (“Duty”). The FCA state the following:

“The Consumer Duty would require firms to:

• ask themselves what outcomes consumers should be able to expect from their products and services
• act to enable rather than hinder these outcomes
• assess the effectiveness of their actions

In essence, we want to see firms putting themselves in their customers’ shoes, asking themselves questions such as ‘would I be happy to be treated in the way my firm treats its customers?’, or ‘would I recommend my firm’s products and services to my friends and family?’

The FCA is proposing the ‘Duty’ would have three elements, including:

1. A new consumer principle

To reflect the overall standard that the FCA expects from firms operating in the retail financial market. The FCA’s proposed options are:

a. A firm must act to deliver good outcomes for retail clients

b. A firm must act in the best interests of retail clients

2. Cross cutting rules

A set of rules and guidance to be applied across all areas of the organisation and which require firms to exhibit three key behaviours:

a. Avoid causing harm

b. Enable customers to pursue their objectives, and

c. Act in good faith towards customers

3. Four outcomes

Building on the consumer principle and the cross-cutting rules, the FCA propose four key outcomes which represent the main elements of the customer relationship and propose to set out their expectations of firm’s behaviours and actions in relation to these:

a. Communications

b. Products and services

c. Customer service

d. Price and value

Our thoughts

The proposals in the consultation will increase the regulatory responsibility that is placed on those serving retail clients, including financial advisers and portfolio managers.

The consultation’s general sentiment is to build on existing regulation, most notably Treating Customers Fairly and PROD. Its overarching emphasis focuses on communications, services and products being aligned to specific individuals’ needs/understandings and there being a greater need for all parties to evidence that costs and charges represent fair value.

For many firms, the proposals will be viewed as a further opportunity to build on good consumer practice, however we anticipate others may see this as further regulatory work to be factored into the running of their business and advice process e.g. the need for more tailoring of communications to reflect specific customer needs, ongoing evidencing of products being aligned to target markets and a requirement to regularly evidence value.

This consultation is due to close 31 July. Following this, the FCA proposes to issue a second consultation later this year, with the new rules to come in by 31 July 2022. In the interim, firms should consider the potential implications of this consultation on their current approach to dealing with retail consumers.

If you wish to discuss this consultation and how our Tailored Model Portfolio Service may be able to help, please get in touch.