Dear CEO/Director | Release Date: 3rd March 2023
To read a shorter summary of this Dear CEO/Director letter, click here.
To access the original FCA document, click here.
Long Summary
The Financial Conduct Authority (FCA) has issued a directive aimed at firms in the credit brokers sector, outlining expectations and the implementation of the Consumer Duty. This new regulatory framework is designed to enhance consumer protection by fostering a more outcomes-focused approach.
Implementation Timeline and Overview
The Consumer Duty introduces stringent measures to elevate the standard of care that firms provide to their customers. Key deadlines include:
End of October 2022: Firms were expected to have their implementation plans ready.
End of April 2023: Manufacturers must have completed necessary reviews to comply with outcome rules and communicated pertinent information to distributors.
31 July 2023: Enforcement of the Duty for all new and renewing products or services.
31 July 2024: Extension of the Duty to all closed products or services.
Application to Credit Broker Firms
The Duty applies broadly within the retail financial products and services sector, encompassing all firms that influence customer outcomes, particularly credit brokers. As both manufacturers and distributors, credit brokers have dual responsibilities under the new rules to ensure all financial products are designed with the customer’s best interest in mind and distributed appropriately.
Key Requirements of the Consumer Duty
The Duty mandates that firms:
Ensure Good Customer Outcomes: Act in good faith, prevent foreseeable harm, and support customers in achieving their financial goals.
Design Products and Services Appropriately: Tailor offerings to meet the specific needs and objectives of targeted customer groups.
Provide Fair Value: Establish a reasonable balance between the cost paid by consumers and the benefits received.
Enhance Consumer Understanding and Support: Improve communication strategies to aid consumers in making informed decisions and provide continual support throughout the product lifecycle.
FCA’s Expectations for Credit Brokers
Credit brokers are urged to rigorously assess whether their current practices align with the Duty’s elevated standards and to make necessary adjustments. This involves:
Service Design: Creating services that genuinely meet consumer needs without unnecessary barriers.
Value and Pricing: Ensuring that fees and pricing structures are justified within the framework of the Duty, including clear disclosure of any brokerage fees and conditions for refunds as stipulated by consumer credit regulations.
Effective Communication: Delivering clear, timely, and accurate information about the services provided.
Ongoing Support: Maintaining high standards of customer service, including training staff to handle inquiries competently.
Feedback on Implementation Plans
A recent FCA review of firms’ implementation plans revealed mixed results, with many firms embracing the new requirements but others lagging behind, potentially risking non-compliance by the July 2023 deadline. The FCA stresses the importance of:
Prioritising Actions: Focusing on areas most likely to result in poor consumer outcomes.
Embedding Requirements Fully: Integrating the Duty deeply into all facets of business operations.
Collaboration and Information Sharing: Working effectively with other firms in the distribution chain to ensure seamless compliance.
Supervisory Approach and Next Steps
The Consumer Duty is central to the FCA’s strategy through 2025, with an emphasis on setting and testing higher industry standards. The FCA plans to actively supervise the implementation process, engage with firms through various means, and provide ongoing support and resources.
Conclusion
The implementation of the Consumer Duty represents a significant shift towards enhancing consumer protection in the financial services sector. Credit brokers, in particular, are expected to undertake rigorous evaluations of their current practices and make necessary adjustments to align with the new standards. The FCA will closely monitor compliance and is prepared to intervene where necessary to ensure that the objectives of the Duty are met, emphasising the importance of this regulatory change in fostering a fairer, more transparent, and customer-focused market.