Posted on by Nigel Ross-Scott

Initial Thoughts on Consumer Duty Final Rules

PIMFA note the final rules are generally in line with the proposals set out in the consultation paper (CP 21-36), and further note some minor changes and clarifications provided by the FCA. We broadly welcome the expanded final guidance and are pleased with the clarity provided on what firms ‘must’, ‘should’ and ‘could’ do to meet the rules, though we note that the prescriptive nature of this guidance is inconsistent with the application of the Duty as Principles based regulation.

Points to note

Implementation period

Whilst PIMFA welcome the FCA’s acknowledgement that implementation of the duty is a complex task and appreciate the extension of the implementation timeline to 31 July 2023 (for new and existing products) and 31 July 2024 (for closed products), we note additional milestones and enhanced board requirements that firms should be aware of:

  • By 31 October 2022 boards will need to evidence that they have formalised and agreed implementation plans for the duty
  • By 31 July 2023 boards need to provide assurance they are ready for the duty.  This will be superseded by the expectation of an annual board attestation of compliance with the duty
  • By the end of April 2023 manufacturers must complete their review of products and services to meet the obligation to provide distributors with information to enable compliance with the outcomes rules, as well as implementing any changes needed by 31 July 2023

PIMFA provided initial feedback on the Consumer duty policy statement PS 22-9 to the FCA noting the October 2022 deadline should be reconsidered as this leaves firms with very little time to meet this new requirement.

Increased emphasis on culture and governance

  • Changes to individual conduct rule 6 require all conduct rules staff to act to deliver good outcomes for retail customers.[1] Senior managers will be accountable for delivering good consumer outcomes within their areas of responsibility, in line with the SM&CR Duty of Responsibility and the Conduct Rules.[2]
  • Board attestation will be a key part of the FCA’s assessment for compliance with the duty and firms should note evidencing compliance may require the FCA having sight of board papers and minutes
  • The final guidance gives firms examples of the types of data required to evidence compliance and the questions set out in the final guidance will be used in the supervision and enforcement of the duty. Hence, firms should give consideration to the examples provided by the FCA when establishing their implementation plans
  • The FCA have also set out key questions for the board and duty champion to consider in determining compliance. [3] The expectation is to embed the duty throughout the firm (e.g. governance, processes, behaviours) to establish a culture of delivering good outcomes
  • Firms should note the FCA expects duty champions to oversee the implementation and application of the duty, and where possible, the FCA would prefer duty champions to be NEDs.

Overlapping requirements and the Handbook

  • PIMFA note the FCA’s failure to disapply Principles 6 and 7. The FCA have not understood industry concerns relating to complexities for firms operating under two regulatory regimes and have not taken this opportunity to carry out a much needed substantive revision of the Handbook.

Retrospective application

  • The FCA do not consider that the application of the Duty to existing products and services, including those closed to new sales or renewal, amounts to retrospection.[4] Given the application to closed books we believe this amounts to retrospective application and firms will have to carefully consider how the new duty impacts products manufactured and sold before the duty came into force.

FOS

  • Despite confirmation that the FCA will work closely with Financial Ombudsman Service (FOS), PIMFA retain concerns relating to FOS’s interpretation of the rules in light of the fact that this is outcomes-based regulation. Given the inherent subjectivity of the Duty, we have specific concerns as to how it may be interpreted going forward in instances where complaints are made to the FOS, as without consistent interpretation of requirements, there is a risk of misalignment creating complexity and confusion for both firms and consumers.

 We will consider the detail of the final rules in our consumer duty working group to support members with implementation. As firms have a very short time period to formalise and agree their implementation plans to meet the October deadline, PIMFA has organised two sessions on the FCA’s implementation plan:

  • The first session will take place on 24th August (2-3pm) to scope out what the implementation plan should look like
  • The second session will take place on 30 September (10-11am) when members can raise any issues they have been experiencing and use the session to check their progress and ensure they are on the right track

[1] Individual conduct rule 6 reflects the new, higher standard of the Duty, and the behaviour we expect of all conduct staff (FG 22-5 p113)

[2] PS 22-9 p75

[3] FG 22-5 p112

[4]  PS 22-9 p26