What firms and customers can expect from the consumer duty and other regulatory reforms.
Sheldon Mills, Executive Director, Consumers and Competition, gave a speech at the Consumer Protection in Financial Services Summit. The highlights were:
Consumer Duty is a significant shift, both for firms and for us at the FCA. It is also an opportunity. The Duty provides a fairer basis for competition and the flexibility of an outcomes-focused, rather than prescriptive, approach. It will provide a boost to growth and innovation.
The Consumer Duty comes at a challenging time for consumers and the wider economy. While the duty is not yet in force, firms should be stepping up now to support customers in these straitened times and ensure customers get good outcomes.
Boards and senior management have a critical role in overseeing firms’ implementation of the Duty. We are committed to working closely with industry during the implementation period and beyond to get this right.
Sheldon Mills concluded by saying ‘Ultimately, when we get this right, we all win: consumers – who will get the right products and services at the price that is fair; firms, who will retain customers and attract new ones; regulators – who will need to step in less often – and most importantly, the wider economy’.
Many FCA regulated firms unprepared for Consumer Duty deadline new research from Moneyhub shows. Only 22% of firms believe that they are currently compliant with the new regulation and 56% of decision makers fear that their business is not prepared, with no projects in place to become compliant ahead of the deadline.
Consumer Duty information for firms has been published by the FCA on a new webpage, including:
October implementation plans: the FCA does not expect firms to have fully scoped all work required to embed the Duty by the October 2022 deadline, but they should have set out how they will do so in time to ensure timely implementation.
Consumer Duty Board champions: the champion’s main role is to support the Chair and CEO in ensuring that the duty is raised in all relevant discussions, and that the Board is challenging the firm’s management on how it is embedding the duty and focusing on consumer outcomes.
Definition of closed products: Closed products are those that are no longer marketed or distributed to retail customers or open to renewal. Where existing customers can continue to make payments under the existing product terms this would still be considered closed, as long as the product or service is not open to new customers.
Consumer Duty and five ways to improve client communication:
Refer to a customer’s lifestyle or circumstances rather than use the word “vulnerability”.
Explain to the customer that providing information will help the firm to give them a better service.
Use short simple messages and clear language.
Support communications with clear online messages about how the firm will use information.
Invest in the training of frontline staff to help them explain why firms need personal information.
The advice comes as firms have until the end of October to produce a plan for implementing the new consumer duty requirements – MorganAsh.
Identify target market
Define good outcomes
Identify harms
Decide how to evidence that 2 is being achieved and 3 avoided
Create the plan – document any gaps between the activity and the evidence
The first place I’d start is with my data and a simple question about how I measure outcomes and what I’d consider to be potential harms."
Tony Crane, consultant and consumer duty expert.
Open Finance could have a role to play in Consumer Duty. “By better understanding your customer, it means you can offer super relevant products and services, and ultimately create stronger relationships and build loyalty” – Moneyhub.
Santander drops judicial review against FOS in relation to a review of mortgage overcharges which aimed to prevent the Ombudsman from accessing standard variable rate details more than 6 years before a complaint was lodged. The lender has agreed to pay both parties legal costs.
HMRC fines 68 estate agents over AML breaches totalling £519,645 for not complying with rules designed to stop criminals from laundering money from illegal activity.
FCA fines Gatehouse Bank £1.58 million for failure to conduct sufficient checks on its customers based in countries with a higher risk of money laundering and terrorist financing as well as politically exposed persons (PEPs). The incidents took place between June 2014 and July 2017 and the regulator reported that the bank has since taken steps to significantly improve its financial crime systems and controls.
Portfolio Supervision Letter for firms providing high-cost lending products has been issued by the FCA. Some of the key harms identified are:
Sludge practices, including not providing clear information about how the product works.
Affordability and relending – insufficiently robust creditworthiness assessments, and refinancing that might result in unsustainable commitments.
Forbearance – a review is underway of how firms treat borrowers in financial difficulty. Interim findings, which firms should already have considered, were published in June, with detailed findings due later in the year.
Failure to comply with the DISP rules on complaint handling, particularly in relation affordability and relending, for example not conducting adequate root cause analysis or identifying systemic issues.
Mark Steward to step down from the FCA as the executive director of enforcement and market oversight after seven years with the regulator.
Regulator proposes new rules to tackle greenwashing which will protect consumers and improve trust in sustainable products. It forms part of the FCA’s ESG Strategy and Business Plan.
FCA launches discussion on competition impacts of Big Tech on financial services as their presence in UK financial services markets has been steadily increasing, with the potential to expand further and change markets quickly.
PRA issues statement on private mortgage insurance schemes with features similar to the Mortgage Guarantee Scheme. The PRA expects firms to assess their compliance including capital requirements and implement changes where necessary by no later than Tuesday 30 April 2024.
