Consumer Duty countdown: Less than one month to go

Here’s what you need to know:

Consumer Duty basics

The Duty will be introduced from 31 July to improve how firms serve consumers. It sets higher and clearer standards of consumer protection across financial services. The overriding Consumer Principle requires firms to ‘act to deliver good outcomes for retail customers’. The regulator is focused on four outcomes representing key elements of the relationship between firms and consumers which are instrumental in helping to drive good outcomes.

These outcomes relate to:

• Products and services - All products and services for consumers should be fit for purpose, designed to meet the needs, characteristics, and objectives of a target group of customers and distributed appropriately.
• Price and value - All consumers should receive fair value. Firms should assess their products and services to ensure there is a reasonable relationship between the price paid and the overall benefit a consumer receives from it.
• Consumer understanding - Firms’ communications should support and enable consumers to make informed decisions. Consumers should be given the information they need, at the right time, and presented in a way they can understand.
• Consumer support - Firms should provide a level of support that meets consumers’ needs, enable them to realise the benefits of the products and services they buy and ensure they are supported to pursue their financial objectives.

Firms also need to follow three cross-cutting rules to ‘act in good faith, avoid causing foreseeable harm and enable and support customers to pursue their financial objectives’. Lenders and intermediaries need to consider the needs, characteristics and objectives of customers – including those with characteristics of vulnerability. As well as acting to deliver good outcomes, you’ll need to understand and evidence whether those outcomes are being met.

Working with lenders

Lenders expect intermediaries to adhere to their policies and all relevant regulatory requirements, including the Financial Conduct Authority’s (FCA) Consumer Duty rules. For example, this means you need to ensure you have all relevant product information from a lender, so you can ensure that total benefits are proportionate to costs and fees, as well as making sure your fees and charges offer fair value. When requested, lenders expect you to provide them with any relevant sales and management information, to demonstrate that their products are being distributed correctly with consideration of customer outcomes. This is in line with Consumer Duty rules and could include relevant sales information, such as your policies and treatment of vulnerable customers, or your complaints data, for example. This is not something to worry about, but it does highlight the importance of documenting your processes and advice thoroughly, as you may be asked for it by lenders or the regulator. If there are any differences between lenders’ expectations of your compliance with the Consumer Duty and your policies, procedures, and controls, let them know and lenders will work with you to remedy any issue. Lenders will help you to make changes but, ultimately, we have a duty to inform the FCA if we become aware of any firm not complying with the Consumer Duty.

What you need to do

Lenders are here to support you and signpost you to trusted information, but it’s advisers’ responsibility to understand their Consumer Duty obligations. Remember you’ll already be working within the Consumer Duty in many areas, but you have to record your processes and policies to prove this.

As a starter, you should:

1. Review your firm’s marketing material, documentation and processes to make sure they’re written in clear, understandable language.
2. Put written processes in place to identify and support customers with vulnerabilities and make sure all staff are trained on them (you can find detailed information on this in the FCA’s Guidance for firms on the fair treatment of vulnerable customers).
3. Make sure customers understand the products they take out as well as the risks, and how these could change over time. This could include discussing the impact of rising rates or the benefits of protecting their income in case of life-changing events for example.
4. Make sure your fee structure is upfront and transparent.
5. Record all of your policies and processes so you can evidence them to the regulator.

The Consumer Duty isn’t rules-based regulation for you to simply follow. Instead, the regulator expects you to review your practices to ensure they’re in line with the overriding principle and cross-cutting rules, as well as its guidance.

Next steps

If you’re an Appointed Representative, keep in close contact with your network, as they should have detailed and specific Consumer Duty support in place for you. Directly Authorised brokers can speak to mortgage clubs or find resources from the regulator, lenders and other third parties. Start with the FCA’s final rules for the Consumer Duty, plus it’s published a wide range of information, articles and podcasts on its Consumer Duty webpage, including the most frequent queries it has received from firms, to help clarify its expectations. SMP members can access more information and guidance on the Personal Finance Society’s dedicated Consumer Duty Resource Hub. Members of the Association of Mortgage Intermediaries can also find support and information on its dedicated Consumer Duty page. Finally, remember that Consumer Duty is nothing to fear. You’ve already done much of this work since the Mortgage Market Review.