In November 2023, the FCA’s Director of Cross Cutting Policy said that the Consumer Duty was “not a once and done exercise”. The FCA have highlighted several examples of how they are using the Duty on their website. As focus shifts to the implementation of the Duty in respect of closed book products the FCA has undertaken a review of implementation to date.

Good practice and areas for improvement

Following its review of firms' implementation plans and fair value frameworks, the FCA has recently published examples of good practice and areas for improvement. The FCA looks at each of the Consumer Duty outcomes in turn and recommends that firms consider its findings and implement any changes needed as a result.

The guidance is intended to remind firms of the outcomes required by the Duty, give examples of how some firms have achieved good outcomes and to set out where more is needed to comply with the Duty. The FCA recommends that firms review its report and use the examples given to continue their work to implement the Duty, particularly to address any poor practices identified and to assist firms in implementing the Duty in respect of closed products. The report comes with a warning that the FCA “will act where we identify firms that are delivering poor customer outcomes”.

What the FCA is looking for

The FCA highlights the need for proactivity in delivering good customer outcomes; firms should not wait for FCA intervention and need to ensure their governance and culture supports this.

The FCA also stresses the need to ensure that vulnerable customers have outcomes as good as other consumers and highlights examples of good practice. The FCA has more recently stated its intention to complete a vulnerability review. The FCA is keen to address any barriers firms have in place to identify vulnerabilities and to avoid foreseeable harm where vulnerability factors are present.

The table below summarises the good practices and areas for improvement identified by the FCA in relation to each outcome. 

Outcome  Good Practices Areas for Improvement
Products and Services

The FCA reports that it has seen consumer harm resulting from poorly designed products and services and recommends that firms act in good faith to ensure that their products and services are fit for purpose. The FCA praises those firms who have simplified their product offer to make it easier for consumers to identify the products they need and those who have made positive changes to their product development processes with a view to delivering good outcomes under the Duty.

The FCA criticises firms that do not share information effectively across their supply chains or fail to consider the role they have within a distribution chain.

Price and Value  

Additional guidance is provided around the price and fair value outcome with the FCA commenting that “retail customers experience harm where they don’t get value for money”. Good practice in this respect involves looking at whether the total cost of products (including fees and charges over the life of the product) provides fair value, with examples of good practice showing firms updating pricing models, reducing charges, and improving value by enhancing benefits.

Fair value is looked at across the distribution chain so sharing information with other firms across the supply chain is important.

Consumer Understanding

This outcome is intended to ensure customers have the information they need, at the right time, and in a way they can understand so that they can make informed decisions. The FCA praises firms that have improved their communications as a result of implementing the Duty by changing the layout of documents, simplifying the language and redesigning the customer journey.

There is still work to be done in respect of consumer understanding, in particular in relation to clarity around charges.

Consumer Support

This outcome requires firms to provide support that meets their customers’ needs. Good examples of this include reviewing customer engagement touchpoints, removing negative obstacles and introducing positive interventions. Seeking feedback from customers was also praised.

The FCA identified several areas for improvement in relation to customer support including insufficient staff training, not taking the time to properly understand customer circumstances when considering forbearance options and not having robust systems and controls in place to avoid foreseeable harms.

Implementation of the Duty in respect of closed products

As well as the guidance above, Sheldon Mills, Executive Director, Consumers and Competition delivered a speech “Consumer Duty: the art of the possible in a year” acknowledging that firms have made “solid” progress to implement the Duty so far whilst also reminding firms of the work that needs to be done ahead of the implementation deadline for closed products.

Mr Mills reiterated the deadline for implementation of the Duty in respect of closed products and acknowledged that there may be gaps in the data firms hold on closed products. He said "We know you may not have every answer. But you need to have a plan for how you will produce one, and how your firm will evidence that it is delivering good outcomes for customers who hold closed products".

The main challenges he identifies are:

  • Meeting the price and value outcome. The FCA wants to see firms considering all aspects of fair value based on solid data and credible evidence, not just benchmarking against the market. Firms should also consider the impact of the value of products and services upon their customers.
  • Evidencing good outcomes and addressing gaps in data. For closed book products legacy systems may mean that firms do not have the same customer data as they do for open products, and this can make it more difficult to carry out reviews in accordance with the Duty and to evidence good outcomes. The FCA expects firms to identify these gaps and to take additional steps to mitigate the risk of harm they create, such as enhanced outcomes testing.
  • Determining fair value on closed products. Again, firms may not have the same level of information about closed products as they do for open products. Some closed products may offer poor value, but the FCA has stated that it will not “judge firms with the benefit of hindsight”. Interestingly, however, there is a stronger indication that “vested rights” may have to be given up if they result in poor outcomes, unless alternative ways of managing harm can be found. This has significant implications for securitisation, warehouse, and forward flow structures.
  • Taking action in relation to less engaged customers and how their outcomes could be assessed. Particularly for older closed products there is a risk that the consumer is not engaging with the product or service. The FCA recognises that this could cause harms such as consumers paying for products that they no longer need. The Consumer Duty requires firms to do more to engage with these customers and to test, monitor and adapt their communications accordingly to reduce the risk of harms.
  • Ensuring that products and services deliver good consumer outcomes long term. The FCA considers the longer-term risks presented by closed products such as annual fees, exit charges and cancellation fees, and expects firms to take steps to address these issues.

The FCA notes that firms may be considering decommissioning products and migrating customers to newer products to avoid having to comply with the Duty in respect of their closed products. However, the FCA recommends that if firms are considering this, they should look carefully at the impact this would have on consumer outcomes ad make sure that consumer harm is avoided.

What it means for you

The FCA acknowledges that there is a lot to do in implementing the Duty, particularly in relation to closed products, but expects firms to prioritise this work to address with the exposure to the greatest potential harm first. The FCA recommends that firms use their board reports as a key tool in the implementation process as the FCA will use these reports as evidence of how firms have provided good outcomes.

Although there is a lot to be done to implement the Duty in respect of closed products (and indeed to continue to implement the Duty on an ongoing basis for all products), the FCA’s guidance is helpful. It is clear that the FCA’s focus on the Duty will continue, and although the FCA has taken a supportive and encouraging stance to date, the Regulator has already warned that it will take action if firms do not comply with the Duty in future.

On 28 February 2024, TLT hosted a webinar seeking to clarify some of the differences and peculiarities of closed book reviews. The key takeaways from the session can be found here.

Written by Amy Earlam, Graham Walters, and Richard Clark.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

05 April 2024

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