Consumer Duty and Consumer Investments: “a long way to go” in 2024

Perhaps the FCA’s sternest words in its December webinar on Consumer Duty: The Next Steps were for the Consumer Investments sector. While the FCA acknowledged that it has seen really positive examples of firms using the Consumer Duty to have a real impact on consumer outcomes, the overarching message was that the FCA thinks the Consumer Investments sector still has a long way to go and the FCA wants to see firms doing more (and in some cases, significantly more).

Areas of concern

The key areas of general concern seem to be:

• Fair value – in particular, firms charging clients for services they do not benefit from (for example, unnecessary ongoing advice services and bespoke DFM portfolios where a model portfolio service might suffice).
• Customer understanding – the FCA noted that some firms are “preying on customer trust” by “pushing” bespoke portfolios or high risk, complex products.
• Vulnerability – the FCA was relatively disappointed with many firms’ approaches. It appears to be a low priority for many firms or not considered at all. There is also a concern with the misconception that wealth precludes vulnerability. 
• Information sharing between firms in the distribution chain – the FCA has concerns where the information shared does not allow others to assess value or, where poor value has been identified, adequate reasons are not shared. The FCA has seen some firms sharing too little and others too much. The FCA stressed that it expects proportionality and does not want a cottage industry to develop leading to cost to the end customer.

Customer complaints

In addition, customer complaints are likely to continue to be a key area of focus for how successfully the Duty is being embedded. Particular points of concern previously identified include:

• FOS uphold rates and what this implies about firms handling complaints promptly and fairly.
• Consumers who are due redress being inappropriately challenged or delayed by firms.
• Firms using unrealistic assumptions when producing liability modelling (to determine the potential risk to which the firm is exposed).

Expectations and approach

The December webinar also cross-referred to the ‘Dear CEO’ letters issued in 2023, in particular in the wealth management space, for SIPP operators and in the investment platform portfolio – see our previous blog posts here and here. These each set out further details on the FCA’s Consumer Duty expectations specific to the relevant portfolio and its supervisory approach. 

There of course has also recently been the December ‘Dear CEO’ letter to investment platforms and SIPP operators on the retention of interest earned on customers’ cash balances. To recap, the FCA detailed its expectation that firms ensure, where they retain interest on cash balances, that they do so in a way that meets the Consumer Duty outcomes, in particular price and value and consumer understanding. This was a specific example of the direction of travel from the FCA, in terms of using the Consumer Duty to bring an existing practice under the spotlight and actively require firms to respond with requested information and make corresponding changes where necessary. 

Leading from the front

By contrast, one of the FCA’s key messages in the webinar was for firms to be proactive and “lead from the front”. There is a warning against firms waiting for the FCA to act and seeing which way it will move to address an issue (such as, one might infer, the retention of interest on cash balances). There is therefore a need for firms to look at their treatment of customers in the round and be prepared to continue to scrutinise through the lens of the Duty existing practices or arrangements that might otherwise have been permissible. This interaction between the new demands of the Duty and otherwise acceptable practices is set to be one of the main, and perhaps most challenging, areas of focus for firms’ ongoing assessments of whether they are delivering good outcomes. 

We expect to see firms not just setting up their Consumer Duty framework and then stepping back, but continually going back to it, revising it and refreshing it.

https://webinars.fca.org.uk/consumer-duty-the-next-steps/join