It’s day 3 of our Twelve Days of Consumer Duty exploring key questions midway through firms’ implementation journeys.
“How do we know if a business line is determining, or having a ‘material influence’ over, retail customer outcomes?”
According to the FCA’s guidance, a firm is able to “determine” or “have material influence” where it “makes or influences decisions over” any of the four outcomes.
So your first step is to ask yourself whether the business fully determines one or more outcomes – that is, whether it has a decision-making role e.g. about the target market, price, communications or support.
Where it does not, then you need to think about material influence. Again according to the FCA’s guidance, whether there is material influence will depend on “the extent to which a firm is in practice exercising discretion over customer outcomes”. Here you may be able to rule some businesses out of scope entirely because they have no discretion. For example, a business might only provide factual information to another firm in the chain.
Between those two extremes – fully “determining” and having no “material influence” – there is a spectrum. Those businesses are in scope on a proportional basis i.e. their scope of their obligations reflect the extent of their material influence.
One helpful way to start thinking about this is to consider what the consequences for retail customers might be if the firm in question fails to perform well or even fails altogether. In addition, think through on a product by product level whether what you are doing can impact a customer’s experience of one of the four outcomes.
Unfortunately, this isn’t exhaustive. There’s enough detail (and imprecision) in the rules that the required analysis can become quite granular and fact-specific. That analysis can be challenging especially in businesses whose products and services are part of many distribution chains.
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