Firms subject to the new consumer duty requirements (in relation to closed products and services) will have already been gearing up for the incoming July 31 deadline.
In this article, we discuss points that firms need to be mindful of for dealing with this.
On July 31 2023, the consumer duty came into force for retail financial services firms with the purpose of ensuring that firms act to deliver good outcomes for retail customers.
The consumer duty applied new rules in relation to all new and existing products and services offered that were open to sale or renewal.
July 31 2024 was an important deadline for two reasons: it is the first annual board report submission date; and the consumer duty rules will now be implemented for firms dealing with closed products and services.
What does this mean for you as an FCA-regulated firm that is subject to these requirements?
Closed products for the purposes of the Financial Conduct Authority glossary are products where there are existing contracts with retail customers entered into before 31 July 2023, and which have not been marketed or distributed to retail customers, including by way of renewal on or after July 31 2023.
Firms must now implement the consumer duty rules for these products as well.
Key issues
The FCA published their latest 'Dear CEO' letter in May 2024, which highlighted the following key issues as priority areas in which firms must take steps in advance of the deadline to ensure that basic customer details are up-to-date and there are no material gaps.
FCA-regulated firms must ensure that there is and remains a reasonable relationship between the price that customers pay and the benefits of the product or service offered.
They must also ensure that characteristics of vulnerability have been factored into their product offering and that they have acted upon such information in a positive way. Firms must be proactive in relation to disengaged clients.
The course of action will vary firm to firm, however the underlying goal is to ensure that customers are not paying for products they no longer need, want, or are eligible for.
Lastly, firms are not expected to give up vested contractual rights, however they must determine whether something is such a right or is it just an expectation to receive future payment.
These points go to the root of the consumer duty, by ensuring that firms are capturing and analysing data and acting upon it, which highlights the need for good systems and processes to be in place.
How to incorporate this into your day-to-day practice
Consumer support services should be easily accessible and useful. Customers must be provided with regular updates so that they can make informed decisions in pursuit of their financial goals.
By having suitable products for your targeted investors and ensuring all charges are visible when a customer is making their decision, they can see whether the products and services being offered to them offer them fair value.
