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Consumer Duty - Expectations for Products and Services
With the final details of the Consumer Duty confirmed, how are firms expected to implement the new rules across their products and services?
The new rules apply to:
- existing products and services – those still on sale to new customers or available for renewal by existing customers
- closed book products and services – those that are no longer on sale to new customers or available for renewal by existing customers
Despite including products and services closed to new sales and renewals, the FCA have been clear that it does not expect firms to analyse past actions against the new rules. The regulator states “Actions taken before the Duty comes into force are subject to the rules that applied at the time”.
Additionally, although the Duty applies in full to both open and closed products and services, the outcomes may not be relevant in the same way. For example, products or services that are closed, will not have any future sales and so there will be no requirements for a target market or distribution strategy.
Products and services still on sale or available for renewal must be reviewed before the end of the first phase of the implementation period – 31st July 2023 – and on an ongoing basis. If any issues are identified, these need to be addressed before the product or service can be sold to any new customers. This may include updating contractual terms and conditions before any new sales. The review is also expected to consider how a firm can address any harm to customers with existing contracts.
Products and services closed to new sales or renewals must be reviewed before the end of the final phase of the implementation period – 31st July 2024 – and on an ongoing basis.
For these closed books, the FCA suggests that firms may wish to consider:
- Carrying out an initial review first. For example, firms might want to consider what aspects led to the decision to close the product or service, to see if that has a bearing on customer outcomes. If a product was closed because it offered poor value compared to newer products, this is clearly a factor to consider.
- Prioritising review of products or services with higher risk of consumer harm. For example, if a firm has received complaints about a product, such as in relation to price and value, it could focus on that product.
- Incorporating a review of the elements of the Duty into existing and ongoing review cycles, so long as they meet the implementation deadlines for compliance with the Duty.
- Grouping similar products and services together for review. For example, firms may be able to:
- analyse cohorts of products or services together, or
- more quickly conclude, for instance, that more recent closed book products or services (which are similar to those still on sale) provide fair value going forward.
Ultimately, reviews across all products or services will need to assess whether any aspects are in breach of the new rules. Firms should consider if any elements could:
- Cause foreseeable harm
- Prevent customers from pursuing financial objectives
They should also ensure that products and services:
- Continue to offer fair value
- Allow consumers to make informed decisions
- Have sufficient customer support in place
RWA has launched a Consumer Duty gap analysis to help firms implement the new rules and guidance. If you would like more information about this or require any assistance in relation to the new Consumer Duty, please contact your RWA Business Manager or get in touch via email at helpdesk@rwagroup.co.uk or call 01604 709509.