Outcome 1 of the FCA’s new Consumer Duty outlines rules for the design, approval, marketing and management of products and services. As you may recognise, the guidance for this outcome has a significant overlap with Product Intervention and Product Governance Sourcebook (PROD), however the Consumer Duty is wider reaching. Satisfying PROD rules is unlikely to mean that a firm has met all aspects of the Duty, particularly with regard to the other key elements.
The products and services rules heavily overlap with the remaining three outcomes and are closely supported by the three cross-cutting rules of the Consumer Duty. For example, “Consumers can only pursue their financial objectives and avoid foreseeable harm when products or services are fit for purpose”.
Additionally, regardless of price, if a product or service is poorly designed or does not meet the needs of the consumer it is sold to, it is unlikely to offer fair value. Thus, the production and sale of such a product would not be acting in good faith.
The products and services outcome, therefore, is central to firms’ compliance with the Consumer Principle (Principle 12). Under the outcome, relevant firms must:
Ensure that the design of the product or service meets the needs, characteristics, and objectives of customers in the identified target market
This will help firms to avoid causing foreseeable harm to any group of customers within the target market. To ensure this, firms must:
- Consider the impact of a product or service on all groups within a target audience and particularly, whether it could adversely affect any specific groups
- Conduct appropriate testing to assess whether the product or service will meet the needs, characteristics, and objectives of customers in the identified target market, considering how their needs might change over time
- Base their work on real consumer needs, characteristics, and objectives and not simply copy other products or services in the market
- Throughout the process, consider those who may, at some point in the lifespan of the product or service, experience vulnerability, and those with protected characteristics (Equality Act 2010)
Ensure that the intended distribution strategy for the product or service is appropriate for the target market
- Investigate what distribution channels are appropriate for the target market, again considering characteristics of vulnerability e.g. if a product is particularly complex and would require a certain level of knowledge to fully comprehend the features, measures should be in place so that it is only sold with advice or only by those with specific knowledge and expertise
- Manufacturers must communicate with distributors to ensure they have all the appropriate information, such as, characteristics of the product or service and the target market
- Distributors must ensure that they fully understand the products and services they distribute, so that they can meet the needs of the intended audience and avoid causing foreseeable harm
Carry out regular reviews to ensure that the product or service continues to meet the needs, characteristics, and objectives of the target market, including customers with characteristics of vulnerability.
- Reviews can be conducted by collecting and analysing data, such as sales information or customer feedback, to ensure you are delivering good outcomes to all groups within the target market.
- Frequency of reviews should be based on aspects of the specific product or service, such as its complexity, target audience and number of complaints (which could indicate harm).
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. Alternatively, get in touch via email at helpdesk@rwagroup.co.uk or call 01604 709509.
