The Annexes to the letter provide some useful framing of the FCA's concerns and expectations in relation to each aspect of the Duty outcomes. Given the audience for this particular Dear CEO letter, much focus is placed upon stressing the FCA's concerns regarding investment outcomes and particularly how these may materialise in respect of mainstream investments and higher risk investments.
Focus on Price and Value
The letter states that 'Consumers are at risk of receiving services that do not meet their needs or represent poor value, which may be due to the nature of the service(s) they are receiving and/or the underlying charging structure', making it clear that significant importance will be placed on firms having robust processes to correctly assess the price and value of their services in relation to correct targeting of products, communication of what customers can expect and diligent monitoring of how each part of the distribution chain behaves to deliver fair pricing and value. The document highlights that firms must make changes needed to pricing structures should they identify that there is a foreseeable risk of consumer harm – or even simply a risk of customers not receiving what they should be able to reasonably expect under the Price and Value outcome of the Duty.
Any process adopted by firms needs to be robust, well informed and transparent – firms should be able to evidence why their charges are at the level they are and what challenge they have applied throughout the assessment, who they consider their peers to be and where they fit into that peer group and, importantly, they must be able to answer and evidence what they have taken as their chosen stance on price and value and be able to evidence a rationale for this stance. The Dear CEO letter underlines that '...firms are expected to be able to stand behind the outcomes their customers are experiencing'.
There is also a reminder about the need for firms to present charges in a clear and understandable way to their clients – which should include seeking to gain some view under the Duty that charges are not just presented in a manner that the firm thinks consumers will understand, but that firms go some way to confirming consumers' understanding.
All of the FCA's comments link back to the importance of having in place cogent, well-defined and transparent processes for not only defining what customers should expect when it comes to price and value, but also measuring those outcomes and the experience of customers during the firm's entire customer journey.
Other concerns highlighted by the letter relate to the Consumer Understanding and Consumer Support outcomes – mainly where firms identify that they have caused harm, either through action or inaction. Detriment as a result of scams and fraud or consumer redress are noted and the FCA reminds firms that any actions that seek to challenge or avoid paying redress due to customers are expected to cease under the implementation of the Duty.
The Annexes also note that for many firms, a cultural change will be required to meet the expectations of the Duty, which will include consideration of incentive schemes and performance management, with firms cautioned that they must '...ensure employees are acting in ways that support good customer outcomes, and in accordance with the cross-cutting rules'. It is clear that firms can expect scrutiny from the Regulator should there be a lack of demonstrable development in these areas ahead of the Consumer Duty implementation date and beyond.
Reinforcing earlier messages
The Dear CEO letter also reminds firms of the 25 January update to all firms subject to the Duty. That particular publication highlighted to firms that they should focus their attention on three important aspects; effective prioritisation, embedding the substantive requirements [under the Duty] and working with other firms – so that responsibilities can be met throughout the entire distribution chain.
In the recent webinars hosted as part of the FCA's programme of industry awareness to support Consumer Duty introduction, and again in the 25 January publication, the FCA sets out a headline programme of engagement with firms to cascade its expectations and sign-post that higher standards as a result of the implementation of the Duty are the cornerstone of its three year strategy, so firms can expect close scrutiny and challenge across all areas of the Duty.
From our work to date and engagement with Consumer Investment firms, we are seeing varying degrees of progress with implementing the Duty and observing some consistent pitfalls and challenges – particularly in tackling the Price and Value outcome. This is where our Consumer Duty approach is intended to help. We have developed a six-stage package offering assistance for firms, regardless of how far along they may be in their Consumer Duty journey – that can be delivered in a manner to best support the needs of individual firms – from review and assurance to design and collaboration.
If you would like to know how we can help your firm, please get in touch to discuss the support that we can provide through our Consumer Duty approach.