On Consumer Duty, keep being proactive: FCA

Over 6000 people beat down the door of the FCA's Consumer Duty webinar on 6 December 2023.  So many that the FCA's systems were overloaded.

It was recorded.  But if a 90 minute webinar is "too long, didn't watch" for you, then here are the key takeaways that struck us as particularly new.  

This will help you as you continue to prioritise your compliance efforts to match FCA focus areas and align with FCA expectations.

• Proactivity.  Be proactive - not just in addressing issues but also in continuous improvement.  Don't "wait for us to intervene."  Insufficient proactivity increases the risk of an intervention.  But if you respond slowly or ineffectively to supervisory engagement, or there's significant harm, then you might face - for example - an OIREQ restricting your business.  Or even enforcement action for "egregious" non-compliance leading to harm.
• Fair value.  Value assessments for fee-free consumer finance products should consider non-financial costs e.g. time and effort required to access the product.  As well as the qualitative benefits: for example, in debt advice, if information is gathered formulaically then individual customers' needs may not be sufficiently identified.  And contingent fees such as interest if repayments are missed on interest-free finance.  Beware of charging customers for a service that doesn't benefit them on an ongoing basis or that the customer doesn't receive at all (such as an annual review). On consumer investments in particular, the FCA is focusing on the fee structures of trading app firms.  
• Customer understanding.  Giving realistic worked examples of how your fees affect a variety of consumers and investment pots.  Consider asking the customer to play back their understanding e.g. by explaining the risks and benefits of a product back to you.  And the FCA is focused on whether bespoke/expensive consumer investment portfolios match customers' risk appetites and whether customers understand the risks and benefits.  As well as customer understanding around stockbroking firms using execution-only services.
• Vulnerability.  The FCA is disappointed with consumer investment firms' efforts here.  For example, equating net worth with lack of vulnerability; blanket classification of customers as vulnerable based e.g. on age; asking customers to self-identify their vulnerability and provide evidence of this; suggesting that if a customer identifies as vulnerable then that may be a barrier to access certain services.  But there are some good practices, such as actively contacting customers whose trading activity exhibits gambling-like patterns.
• Information sharing.  The FCA still wants to have their cake and eat it (our comment, not theirs).  You need to exchange enough information.  But not so much that a cottage industry develops at ultimate cost to the customer.  You need to work together to standardise information gathering, but avoid overgeneralisation and/or proliferation of bespoke information exchange.
• Governance and culture.  Embed the Duty across the firm.  Don't leave it with a project team or your 2LOD.  The FCA will ask firms for their annual board reports, review a sample and give feedback on data, level of board challenge and action plans to address gaps.
• Prioritisation of work on closed products.  Pay attention to whether the product was closed because of a consumer outcomes issue such as fair value.
• Insurance.  Fewer products have been withdrawn on value grounds than the FCA initially expected.  And fewer firms than the FCA expected have approached the FCA for bespoke measures (such as rule changes) to address issues with legacy life insurance products.
• Crypto.  Some firms applying to approve crypto promotions have insufficiently demonstrated to the FCA that they are considering the Consumer Duty.