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A FCA Consumer Duty Summary & Your Template Policy To Draw Your Line In The Sand

fca consumer dutyThis policy has over 20 pages, comes with full version and document control and, contains fully editable content for different types of firms from FSMA, Payment Services and Consumer Credit permissions. This is the first commercially available FCA Consumer Duty Template Policy available in the UK in general release, created by the regulatory compliance innovators, Compliance Consultant.

Without repeating regurgitated news, that has been around since summer 2022, the FCA Consumer Duty provides clear standards of consumer protection across financial services and requires firms to empower and protect consumers to achieve good customer outcomes.

The new Consumer Duty summary is quite short and has three key elements:

  1. The Consumer Principle – this reflects the overall standards of behaviour the FCA expects from firms. A very important point to note is that the Consumer Principle extends to firms that are involved in the manufacture or supply of products and services to retail clients, even if they do not have a direct relationship with the end customer.
  2. Cross-cutting Rules – these set out the key behaviours demanded by the Consumer Duty and make clear that the Consumer Principle requires firms to:
      • Take all reasonable steps to avoid causing foreseeable harm to customers
      • Take all reasonable steps to enable customers to pursue their financial objectives
      • Act in good faith

     3. The Four Outcomes – these build on the Consumer Principle and the Cross-cutting Rules, representing, in the FCA’s eyes, the key elements of the firm-customer relationship: i.e. how a firm designs, sells and services its products and services, along with the key touch points along the ‘customer journey’.

The FCA Consumer Duty Rules are, on the face of it, quite complex and time consuming in their implementation. Once you grasped the basics, much of it, when added to the Operational Resilience Planning conducted last year provides a huge amount of insight into how your business is running, should be run and protects itself in the future.

Don’t Get Caught Out!

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When considering your implementation and evaluation of products, you not only need to consider all aspects of value and understand that value is much more than just the price charged or a comparison to peers’ charges. The rules are clear: there must be a reasonable relationship between price and the overall benefits of a product or service. Beyond performance, this may include non-financial costs or benefits, such as the time and effort needed to amend, buy, switch or cancel a product, as well as qualitative metrics such as the quality of a product or service (including communications), the strength of brand, or level of customer service. Firms need to have a framework for assessing all the relevant aspects of value.

Evidence your conclusions and assumptions on fair value. Fair value means looking beyond just price to a more holistic view of the wider benefits and costs of products/services. Firms implementing the Consumer Duty fair value expectations for the first time should set themselves up for success by learning lessons from other sectors, such as asset managers, general insurers and independence governance committees (IGCs), who have already faced regulatory focus on ‘value’ and have begun to tackle this challenge.

In assessing the full value of their products and services, firms need to demonstrate judgement and, crucially, be able to evidence how they have determined that the benefits of their product or service are reasonable relative to their price. Firms need to have good recordkeeping to do this. Where firms make assumptions, how can they be justified to the FCA?

Being able to bring together data from a range of sources in the right way is critical to monitoring, evidencing and delivering fair value to customers.

For example, firms might collate and analyse data from consumer testing, their own operations or data from other firms in the distribution chain. Reviewing data over time, such as the claims acceptance rate for insurance companies, might show firms if the value of their products is improving.

Present your findings clearly and make them easily accessible
This means presenting the results clearly, in a well structured report that can be easily accessed, with the right granularity of information, including charts and graphics. Beyond client communications, this is key for Board oversight and accountability. Without clear and accessible reporting, Boards and management will not be able to approve product governance reviews, provide effective challenge or provide SMF attestations to the regulator.

This policy template provides the over-arching framework of what your firm does, who you are and what it stands for. Then, moving forward, it helps all concerned know where you are going and what you are doing to serve the consumer duty in word, spirit and passion.

Order your template policy today!

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