First proposed in May 2021 with the intention of improving standards for consumers, the Financial Conduct Authority's new Consumer Duty, which is set to be published on 29th July 2022, will further benefit and protect consumers.
The FCA's new Consumer Duty is set to enhance consumer protection by ensuring that firms focus on getting things right from the start. It will introduce a new requirement for firms to "act to deliver good outcomes for retail clients" and, by doing so, firms will be required to move from treating customers fairly to treating customers well. It will allow consumers to make good financial decisions whilst having greater trust in financial services firms.
The new Consumer Duty rules are set to be released in July 2022, with full implementation required by April 2023. The four outcomes are:
The idea is that, where necessary, the culture will be shifted to focus more on understanding clients and their needs. The rules will make senior managers accountable to the FCA and make sure they have a clear understanding of how the firm is performing its duties to clients, the outcomes and how it will deliver the requirements of the new Consumer Duty.
It is important to note that the new rules will extend to include all individuals who indirectly deal with clients and are involved in the process of delivering financial services to clients.
Firms will be required to provide evidence rather than acting on the outcomes alone, and therefore there will be an obligation for firms to ensure that there are measurable steps to the delivery of good outcomes for clients. This includes suitable products, quality of service and communications offered.
In many ways, adviser firms are best placed to make the changes required as they have a close relationship with their clients and an understanding of their specific financial outcomes. In April 2022, Royal London commissioned a survey by Opinium with a sample of 200 UK financial advisers which showed how prepared advisers were for the new Consumer Duty rules. The results showed that 54% of advisers understood that they will need to make some changes to their firm’s practices, however the majority of the advisers (53%) expected to make only minor changes. Only 2% of the advisers anticipated there would be a significant amount of change needed to meet the new rules.
This shows an encouraging result in that many firms are already complying with the new Consumer Duty requirements as standard practice. Advisers are essentially assisting clients to achieve good financial outcomes on a daily basis, therefore it is expected that most are in line with the requirements already. It is important for all firms to review the final regulations when they are published in July 2022, as often the devil is in the detail.
There has been a sense of advisers networking and collaborating to help each other deliver good outcomes for their clients. It is an unintended consequence yet one that is inspiring for all. At LGT Wealth Management, we are plugged in to networking groups and industry forums to inform our approach. Work is underway to review our Training and Competence requirements and our Conduct Rules training in light of the new Consumer Duty rules. We see this as an opportunity to further enhance our processes, procedures and management information to evidence this, while continuing to keep our clients at the heart of all that we do.
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