The Financial Conduct Authority’s (FCA’s) new rules are likely to be the biggest shake up of financial services since the Retail Distribution Review and the Mortgage Market Review. John Somerville, our Head of Financial Services, sets out what this means for mortgage and financial advice firms – and how to prepare yourself for a more consumer-led world.
What does the FCA’s new Consumer Duty include?
The FCA’s new Consumer Duty sets out three cross-cutting rules on how firms should serve retail customers to deliver good outcomes:
- act in good faith towards retail customers
- avoid causing foreseeable harm to retail customers
- enable and support retail customers to pursue their financial objective.
These rules are supported by four outcomes, covering:
- products and services
- price and value
- consumer understanding
- consumer support.
When does the FCA’s new Consumer Duty come in to force?
The FCA has changed it’s implementation dates from its original plan to a simple two‑phase implementation period.
From the end of July 2023 the Duty will apply to all new products and services, and all existing products and services that remain on sale or open for renewal.
That means your firm has nearly a year to implement the new requirements on the bulk of retail financial products and services. The idea is this will have a beneficial impact on the majority of consumers.
The second phase is from the end of July 2024, when the Duty comes fully into force and will apply to all closed products and services.
How can advice firms comply with the Consumer Duty of Care?
Julie Pardy is the Director of Regulation and Market Engagement at Worksmart. She says the regulator is asking firms to consider how they interact with individuals.
“Sometimes firms can unwittingly set their position in such a way that they’re exploiting biases that they might not have realised existed.”
The FCA has become increasingly focused on poor customer support and the needs of vulnerable customers over the last couple of years. Having invested in data analysis and science, the FCA is in a better position to look at patterns of behaviour.
Pardy suggests the Consumer Duty of Care is an opportunity to improve the industry and its reputation.
Worksmart's Nic Dent, who also took part in our webinar, says, "It's all about training and competence at an individual level.
“Part of that will be an increased awareness of your role and position within an organisation and how you and your function interacts with the office next door in the interest of the customer."
What can you do now to prepare for the Consumer Duty of Care?
To comply with the consumer understanding outcome, you’ll need to make sure you can explain products and services so that customers can make informed decisions. And under the cross-cutting rules, firms must avoid causing foreseeable harm.
Now more than ever, you must be sure that you’re giving fully informed advice before your customers commit to a financial decision.
As Albert Einstein once said, “If you can't explain it simply, you don't understand it well enough.”
So why not use your continuing professional development (CPD) to make sure you fully understand what you’re explaining to customers? You – or colleagues in your firm – might consider studying a new qualification as targeted CPD so that you can ensure you have all advice areas covered in your team.
You should also ask yourself whether you have enough understanding of areas of the advice process that you don’t specialise in. For example, if you’re an Equity Release Adviser, and you come across a client with an inheritance tax issue, are you aware of the potential issues? And can you make a professional handover to another adviser? This is essential.
The good news is time’s on your side, but don’t squander it. Decide what you need to learn and set out that all important learning plan now.
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