On 17 January 2023, the FCA published its latest podcast on the Consumer Duty together with a transcript.
The podcast considers the Consumer Duty’s products and services outcome.
The podcast makes a number of points including:
- The FCA wants to see products and services designed to meet the needs of a clearly defined target market and then they want firms to monitor and see what happens in practice.
- In some sectors rules on product governance are not new. Where a firm must currently comply with those rules it should continue to do so because those rules are broadly equivalent, and the outcome should be the same. However, firms still need to consider if the Consumer Duty applies to any additional requirements to what they are doing.
- The Consumer Duty rules apply across all sectors where there is a retail customer, all firms in a distribution chain that reaches a retail customer.
- The Consumer Duty rules apply equally to products and services.
- When firms are identifying their target market it should be at a sufficiently granular level. As a rule of thumb, the target market should be defined in enough detail to avoid including any groups of customers who would suffer harm from that product or service.
- If firms identify issues affecting a group of customers in the target market, this may indicate that they are not really correctly defined that target market and they may want to change that and therefore change their distribution strategy as well.
- Customers may move in or out of vulnerable circumstances at any stage. Under the products and services outcome, the FCA wants firms to consider whether their product or service has features that could risk harm for any group of customers, including those with characteristics of vulnerability. If it does, the firm needs to consider how best to mitigate those risks.
- Firms are required to appropriately test their products and services. What is appropriate will vary depending on the product or service, depending on the circumstances and more guidance can be found in chapter 6 of the FCA’s finalised guidance.
- The FCA has set out specific rules regarding the reviews that manufacturers and distributors need to take. There is also a need for firms to share information to support these reviews.
- Distributor firms must provide information to support the reviews that manufacturers are doing. In general the FCA does not expect distributor firms to share information without being asked as the information is to support a manufacturer view of a product or service. The FCA expects the manufacturer firm to consider what information would be helpful and to take reasonable steps to gather it. The FCA does not expect firms to share information about individual customers, if that conflicts with data protection laws but firms should consider providing anonymized or aggregated information to avoid that. There is further discussion in the FCA’s finalised guidance.
- The reason why the FCA wants firms to conduct regular reviews is that it wants them to take action where they see problems so that they can make sure they are delivering good outcomes for retail consumers. The kind of action that a firm takes could vary and includes amending a distribution strategy before making any further sales.
- The FCA’s finalised guidance sets out some key questions that firms could ask themselves to see if they are complying with the rules. These are also the likely questions that FCA supervisors could pose.