Expert & facilitator: Michael Lawrence, Principal Consultant, Bovill
Headlines:
- The duty aims to drive higher standards in firms' products/services, governance and culture
- The new cross-cutting rules require firms to act in good faith, avoid foreseeable harm, and enable customers to pursue their financial objectives
- The outcome rules raise product governance standards, particular in areas like product design, fair value and customer communications
- Firms need to evidence fair value and good outcomes through data and MI. This requires having metrics to monitor performance against standards set in product reviews. FCA supervision will focus on outcomes versus purely compliance
- With the FCA's thematic review on retirement income advice there are concerns about variability in processes and outcomes across the market. The review will examine areas like service design, charging, advice processes, products/investments and ongoing service
Discussion points:
The session discussed the impact of the FCA’s Consumer Duty and thematic review of retirement income advice on the retail investment sector. Key points made included:
- An overview of the FCA's Consumer Duty principles and how they apply in practice to firms' products, services, culture and governance. The duty raises standards in a number of areas via the new consumer principle and cross-cutting and outcome rules. While the majority of firms have made progress implementing the duty, the quality of this work has yet to be tested by the regulator and there are ongoing challenges in firms transitioning project work to BAU
- Most firms completed initial product and service reviews under the duty, but the FCA will be looking for ongoing monitoring and evidence of good outcomes. Firms need data strategies to effectively track and demonstrate the quality of consumer outcomes, particularly around fair value
- For retirement income advice, the regulatory framework has very limited detail compared to that for defined benefit transfers. As a result, advice processes remain variable across the market. The FCA is concerned about the potential for consumer harm and its review will assess this, focusing on areas like service design, charging, advice processes, products/investments and ongoing service
- Other topics covered include the ‘advice gap’, the impact of the FOS, working across the value chain under the duty, and interactions between pension and property wealth
Key takeaways:
- Ensure you have reviewed and documented your products and services under the Consumer Duty, and taken action where issues have been identified
- Assess your management information and data strategy for tracking the quality of consumer outcomes against fair value standards e.g. performance versus expectations
- Ensure your governance, controls and staff incentives are aligned to delivering good customer outcomes and the Consumer Duty principles
- Keep track of the FCA and trade associations updates on the FCA’s thinking and expectations around the Consumer Duty and retirement income advice
- Conduct an internal gap analysis on our retirement income advice processes against likely areas of FCA focus in the upcoming thematic review
