Twelve Days of Consumer Duty #1: The FCA’s proposed amendments

Welcome to our Twelve Days of Consumer Duty.  Leading up to the festive break, we’re exploring twelve key questions about the Duty as firms look towards the new year and plan they next steps on their implementation journeys.

Today’s question

“The FCA is already consulting on some changes to the Consumer Duty rules! What are these and will they impact me?”

What is the FCA doing?

The FCA's been keen to engage in productive dialogue with firms throughout the Consumer Duty implementation period.

Perhaps its latest move isn’t quite what firms had in mind.

It's proposing amendments to the Consumer Duty rules, apparently to ensure they are applied correctly and to "avoid possible misunderstandings".

A mixed bag

Some of these amendments are welcome – for example, its proposed clarification about how the Duty applies when a firm is approving or communicating a financial promotion. Others remedy potential technical points that could undermine the FCA's intentions. In the context of occupational pension schemes, the FCA plans to amend the definition of a "retail customer" to include beneficiaries of an occupational pension scheme (rather than a beneficiary in relation to the underlying investments held in that scheme, as is currently drafted). There is also confirmation that services provided to defined benefit pension schemes will remain prima facie in scope, even though the FCA acknowledges that in most cases firms will have little or no ability to influence retail customer outcomes here. 

Some take a puzzling approach.  For example, there are concerns that some products would not be considered "closed products" because they might still be being "distributed" (in the Consumer Duty sense) to customers despite being no longer open for sale or renewal.  The FCA's solution was simply to de-italicise "distributed" in the definition, intending that the word should have its ordinary meaning in this context (which the FCA says is narrower).  In practice, this might just create more ambiguity.

Still more changes aren’t merely clarifications.  Instead, they effectively bring more activity within scope of the full suite of Consumer Duty rules.  For example:

• The FCA has amended the Consumer Duty rules to make it clear that TMPR firms are in scope of the various governance, monitoring and redress rules contained within PRIN 2A, and not just the consumer understanding outcome. 
• A further proposed amendment denies investment funds access to the exclusion from the Duty for non-retail financial instruments with a denomination or minimum investment of at least £50,000.  It's hard to see why investment funds are singled out here.  The FCA's consultation paper says it wants to make sure that retail business (such as advice to a high net worth individual about investing in a fund with a high minimum investment threshold) is not excluded as this was never the intention. The exclusion of investment funds arguably goes further than is necessary to achieve this.

These scoping changes could prove seriously problematic for affected firms.  The implementation period was already challenging (with a 31 July 2023 deadline for new and existing products) and most firms' scoping exercises are well-advanced.  The consultation on these proposals closes on 9 January 2023 with rules to be made after that on a date still to be determined. That’s a long time to wait for clarity, and leaves at best under six months for implementation once the position is confirmed.

Tell the FCA what you think

If you have strong feelings about all this, then get your responses in.

Want more?

For all our insights on the Consumer Duty, visit our webpage, or reach out to any of us to continue the conversation!