We first hinted about the FCA’s work on the new Consumer Duty back in July, as part of our assessment of the regulator’s business plan and priorities for 2021/22.

At the time we said the changes outlined could be the most impactful change for the advice sector since the RDR.

This week the FCA’s published its latest Consumer Duty consultation paper, and we’re still firmly of that view.

At the lang cat we try to avoid regulatory hyperbole, repeatedly crying wolf that the next regulatory change is going to be a big thing, but this does actually feel like it could be a big thing.

For both advisers and the wider financial services sector, 2022 is going to be focused on interpreting exactly what it all means, and making the required changes. So there is a lot there to be getting on with.

Since the original consultation in May, very little has changed. This, combined with a relatively tight consultation period (nine weeks, minus the Christmas break) suggests that as far as the FCA is concerned, much of the content isn’t up for debate.

While we may see some tweaks around the edges, the fundamentals of the Consumer Duty look set to stay.

So, enough preamble. What has the FCA actually said and, crucially, what are the things that firms should start thinking about?

At a glance

The FCA has structured the Consumer Duty according to a set of high-level proposals:

At the highest level we have the Consumer Principle. The FCA defines this as: “A  firm must act to deliver good outcomes for retail customers.”

This is then underpinned by three ‘cross-cutting’ rules. These state that firms must:

·       act in good faith towards retail customers

·       avoid causing foreseeable harm to retail customers

·       enable and support retail customers to pursue their financial objectives.

The latest paper sets out more detail on the regulator’s expectations through draft handbook rules and guidance.

We then have the four outcomes of the Consumer Duty, again which are backed by draft rules and guidance.

There is a lot of detail here which is worth returning to, but as a starting point the outcomes are:

1) Products and services

This is about PROD (or the FCA’s Product Intervention and Product Governance rules for the more formal among you). The FCA wants firms to truly embed the PROD principles of defining your target market and monitoring accordingly.

2) Price and value

Value is something we talk about a lot. In this context, this outcome will mean all firms have to carry out a value for money assessment.

3) Consumer understanding

This outcome focuses on the quality of customer and client communications.

4) Consumer support     

This requires firms to consider the support their customers need, and to make sure customer service levels meet these needs.

I can’t stress this enough: all four outcomes will be enforced through FCA rules.

Some points to note

The FCA hasn’t held back here. The consultation paper runs to 243 pages (!), 71 pages of which is guidance for firms.

If you read any part of the paper (and you really should read it all) I’d suggest you start on page 120 if you’re working off a hard copy (page 171 in the PDF). This is the guidance section, which sets out some clear good and poor practice examples.

I’ve included just a couple of the parts that jumped out at me on my first read-through – posted here without comment:

Other thoughts and next steps

For some firms, even the three cross-cutting rules on their own will require a fair bit of work to implement.

All the outcomes will have an impact across the sector, but for advisers and providers outcomes 2-4 on price and value, consumer understanding and consumer support could be particularly irksome.

It’s worth bearing in mind the FCA is expecting this work to “drive a fundamental shift in industry mindset.”

The Consumer Duty is aimed at all of retail financial services. This includes explicit mentions of firms who don’t have a direct relationship with the end client, and providers with customers in products closed to new business but who remain invested.

If you want to have your say, there is a narrow window to do so - the deadline for responses is 15 February 2022.

The final policy statement is expected in July, with new rules likely to come into effect around April 2023.

As you’d expect, we’ll be working through the detail over the coming months, and what it means for advice firms. The Consumer Duty is becoming real – but as with any big regulatory change, we’ll help you through.