Regulation Including PROD
4 min read 20 Sep 21
Regular readers may recall that I already wrote about the Consumer Duty back in June, when the first consultation paper was announced. At that time we felt that this could well be “the biggest change since RDR”. As the consultation and discussions have progressed, we are growing more confident in this belief. And while the details have still to be confirmed, the Consumer Duty is certainly something advisers should start planning for now.
Before we dive into the detail, a quick reminder of what the consultation is all about. The FCA wants to see “a higher level of consumer protection in retail financial markets, where firms compete vigorously in the interest of consumers.” All firms will be required to “put the consumer at the heart” of what they are doing, and there will be a range of cross-cutting rules and outcomes to ensure this is achieved, and if necessary, enforced. A key point to note is that the scope covers all of retail financial services, explicitly including firms who don’t have a direct relationship with the end consumer.
Central to this will be four outcomes, designed to support the new cross-cutting rules. The first three: communications; products and services; and customer service – relate to what is provided by firms to consumers. The last element, price and value, relates to payments consumers make to firms.
Let’s start by looking at communications. All firms will be required to ensure their communications are not only compliant but are “understandable and can facilitate informed consumer decisions”. And businesses will need to conduct regular testing to evidence this point. Providing information on its own is not enough to ensure that consumers are able to make informed assessments, and as everyone knows (and the regulator is now recognising), an overload of information will often make things worse. So, as well as ensuring your communications are “clear, fair and not misleading” you’ll also need to be certain that they are understandable, with testing in place to ensure this is always the case.
Secondly, products and services will need a clear target market definition. This is building and embedding the PROD rules that the investment and advice sector have “enjoyed” over recent years.
Next up is customer service. This will need to be of a standard that “meets consumers reasonable needs and expectations”. Again, firms must be able to evidence this, and it’s probably fair to say some firms (considering the scope is all of retail financial services) might need to up their game here…
And finally, if all that wasn’t enough, all firms will be required to conduct a value for money assessment similar to the ones that asset managers have been facing over recent years. Businesses should be able to demonstrate that the benefits of their products and services are reasonable relative to their price. The FCA wants firms to actively put consumers at the heart of their business and assess the price of products and services at the design stage as well as through ongoing monitoring.
The good news is all of this is based on the current consultation so could well evolve as and when the next paper is published before the end of the year, with the promise of new rules by July 2022. However, with such tight timescales for what is a very large piece of work it doesn’t feel like the FCA are up for much debate about altering the scope. If this proves to be correct, 2022’s hot regulatory topic could indeed be the Consumer Duty.
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