The Consumer Duty implementation plan –
Will it work?
November 2022
There have been many column inches devoted to Consumer Duty. The FCA’s latest iteration of Consumer Duty that has been described as “Treating Customers Fairly on Steroids”.
There have been many column inches devoted to Consumer Duty. The FCA’s latest iteration of Consumer Duty that has been described as “Treating Customers Fairly on Steroids”. The most recent attempt to get financial advisers to take care of clients and give them services and products that will end with a decent outcome for customers. Surely all advisers have this as their primary consideration, but it still seems not to be the case.
The advisers that I work with have had this culture, but on the occasions that this has not been the case, I have refused to continue to work with them. And, on two occasions, I have whistleblown to the FCA with my findings. In my usual manner, I managed to short-circuit the FCA because I copied the advisers into my report to the FCA. They were flummoxed by a report that was not anonymous and needed to set up a different procedure. But I work on the principle question, who is worse, the perpetrator of bad practice or the person who sees it, can do something about it, but does nothing?
So, Consumer Duty is the next step and may well be more successful than previous efforts as the FCA seems to be gearing up to have enough resource to actually enforce more regularly.
Firms needed to have an action plan in place by 31st October with a view to implementation by June 2023. The plans needed to be in place and reported to the Boards of the firms. This is quite humorous for the firms that I look after as most of them look at their Board in the mirror most mornings.
The implementation plan tends to be a whole review of the business, documentation and procedures. This is most effective when documents are looked at through the eyes of customers. It has been suggested to give the documents to junior members of staff to see whether they understand them. I always tell my adviser firms to make things so simple that even a compliance consultant can understand them. But these need to cater for even more basic requirements to be simple, jargon-free, easy to read documents.
So, lots of templates are needing to be reviewed. Part of this review should be to consider our suitability letters as a matter of urgency. As a rule, they tend to be far too long.
Years ago, I attended on FCA Live & Local event run by the wonderful Mark Goold and Gordon Findlay. They never did take my suggestion that they should have a fan club with accompanying merchandise seriously. The message on suitability letters was that the FCA would prefer to see a short executive summary that the client would be likely to read, with all the compliance padding put into appendices that would provide more detailed background information for those clients that might want to have them on record.
Of course, advisers are paranoid that if they do not provide all the information, they would leave themselves exposed to possible claim from complaints from clients that would be supported by the Financial Ombudsman Service or the doubtful and often fraudulent claims from claims management companies. Advisers felt that this presented a bigger risk to them than simply producing a long, detailed suitability letter that clients would rarely, if ever, read in full. The advisers did not rate this “Treating Customers Fairly” as big a risk as potential threats to their business from complaints.
It will be interesting to see whether this culture changes with the new Consumer Duty.
Anybody who knows me will know my opinion of Claims Management Companies. I had hoped that being regulated by the FCA would improve practices. To an extent it may do as they are not abusing the court system to extort money from advisory firms or their Professional Indemnity providers. But the regulation is still not strong enough.
Some CMCs have opted to continue to by regulated by the Solicitors Regulatory Authority, which is considered to be an easier option than the FCA. However, I came across one claims management company that avoided regulation altogether by registering as a charity. There is an exemption clause in the FCA rules in this respect. I looked at their articles of association and their charitable status seemed to revolve around them employing local people and undertaking claims to get money back for clients as a public duty. I reported them to both the FCA and FOS as there did not appear to be any actual charitable activities or money going to charitable causes. There is always somebody who is able to find loopholes to use to their advantage.
This is the problem with our society and financial services industry and probably the Consumer Duty may not the cure-all that FCA would like to see. We can only hope!!