FCA: New consumer duty will affect authorisations
Financial Conduct Authority (FCA) authorisations technical specialist Alex MacDermott has described the ways in which the new consumer duty will change the way authorisation applications are assessed.
In an FCA podcast series on the consumer duty, MacDermott said while the standards that firms are assessed against won’t change, the lens through which threshold conditions are evaluated will.
He said firms will have to demonstrate adherence to the consumer duty throughout their systems and controls and their regulatory business plan.
Read more: Some firms not ready for consumer duty, FCA warns
“They’re going to need to provide quite a lot of information in their application form and probably also in some supporting documents like their regulatory business plan”, he said.
“There are some things in the rules that are going to require maybe a specific policy, such as a fair value assessment or an annual outcome monitoring plan. But there will be other elements that maybe just go through the firm like a stick of rock.”
He warned firms away from making generalisations on how they would mitigate risks, for example statements like “our products will always be fair value” or a firm that claimed all its customers understood its products, were picked out as failing to satisfactorily describe how a duty of care was being provided.
He said a good application would include “a really clear articulation of how the duty impacts you and what you do and then how you’re going to monitor customers are achieving appropriate outcomes, so they’re getting good outcomes. And then how you’re going to act to make sure that that continues”.
This includes how firms will use customer satisfaction scores or product performance markers to continually improve and monitor performance.
Read more: FCA challenged 8,582 financial promotions last year
Firms are expected to detail the risks they know are inherent in their businesses and explain how they are going to mitigate them in view of the consumer duty.
For those that are applying prior to trading, MacDermott said, “we need to assess that they’ve got the policies, processes, systems, controls and people and financial arrangements in place to meet the requirements of the Duty as they apply to them. And then, if they achieve regulatory approval, they’ll go off and start trading and then they’ll supply regulatory data and that will be looked after by our colleagues in supervision.”
MacDermott also highlighted the role of a consumer duty champion, whose responsibility it will be to ensure that the consumer duty is consistently applied at all levels of the business.
“Obviously it’s going to apply to different firms in different ways,” he said. “A sole trader who is just himself, obviously we’d just expect him to put the needs of customers first. If it’s a smaller firm where there’s a few members of staff, then again, there might be someone who takes a lead on things.”
However, in larger firms – those with a board, for example – MacDermott said there was a firm expectation that a senior individual on the governing body would take a lead on the consumer duty.
They should be able to “really challenge other people on the governing body or the decision makers within the business, and actually influence change should they see that something is not working out as planned and customers are not achieving the outcomes that the firm is expecting”, he said.
The consumer duty comes into force on the 31 July 2023, however the FCA expects firms to demonstrate compliance with immediate effect if they are trying to gain authorisation.
Read more: FCA to host series of consumer duty events
