The Consumer Duty final rules – what has changed?

04 August 2022

The FCA have now published PS22/9, the final rules for The Consumer Duty. In this seventh article of The BDO Consumer Duty Series, we summarise some of the key points and set out what’s changed.

What are the new key dates?

The deadline for implementation has been extended. Firms will now have until 31 July 2023 to implement the new rules, and until 31 July 2024 for closed book products. While this extra time will be welcomed, final rules now require firms to have signed off their implementation plans by the end of October 2022.

To help distributors complete their implementation by the July deadline, manufacturers are now required to share information with their distributors by 30 April 2023.

How does the Consumer Duty apply to closed books?

PS22/9 makes it clear how closed book products will be affected. Firms will not need to retrospectively apply the new rules to past actions, instead the rules in place at the time will prevail. However, the FCA intends firms to bring closed book products up to the same standards as those currently available which means they will be subject to all the Consumer Duty Rules on a forward-looking basis. For servicing or access to clear communications, this should be straight forward. But for some other aspects, this may be a challenging exercise for firms with products that are decades old.

The FCA has also provided clarity on the application of the price and value outcomes for closed book products and expects firms to act where products do not meet the fair value standards. While there is no requirement on firms to amend vested contractual terms, they may need to consider alternative ways of achieving a reasonable relationship between price and value, such as amending (non-vested contractual) fees and charges. To help firms better understand this potentially challenging area the FCA have provided further guidance.

Where ‘closing’ a product or service because they think it is not compliant with the Duty, the FCA expect firms to consult with them about this. And where regulated firms acquire closed books, they will be expected to demonstrate ‘best endeavours’ in meeting the new standards for those customers.

Customers are not ‘average’

Products and services should no longer be targeted at ‘average’ customers. There are concerns that such a broad description may miss certain groups. Instead, firms should consider the range of specific needs within a target market including those of consumers who may be vulnerable or in financial difficulty.

More detail for Payment Services and EMoney

Final rules confirm that The Consumer Duty will be used for Payment Services firms and Electronic Money Institutions. This sector will need to think about their distribution chains with a key focus on communication, advertising, and servicing practices.

A new consumer principle

For retail and SME business where The Consumer Duty applies, a new principle will replace existing principles 6 and 7. ‘Principle 12’ states that: a firm must act to deliver good outcomes for retail customers. For business not affected by the new regulation, principle 6 and 7 will preside.

What do firms need to do next?

Firms now need to be analysing their business and developing detailed implementation plans for how they will achieve the new regulatory requirements. From Oct 2022, FCA supervisors will be expecting to see these plans documented, with progress tracked and evidence of board oversight.

How can BDO help?

BDO are already helping clients develop their roadmap toward implementation of The Consumer Duty. We can also help to implement outcome testing frameworks or provide outcome testing as a managed service. To find out more about how BDO can help you with your Consumer Duty journey please get in touch with Richard Barnwell.