Despite five-plus years of detailed preparation to land a human on the moon, NASA’s Apollo 11 rocket on take-off in 1969 kept everyone on their toes with a sense of unease that things may still not work as planned.
Similarly, asset managers have been on a long five-year preparatory journey on the duty of care to consumers.
Despite investing significant resources, producing assessment of value reporting since September 2019, many continue to feel a sense of uncertainty on whether their management information and processes are mission-critical ready and if they have done everything reasonably possible to deliver a good outcome for their retail customers.
On July 31 the Financial Conduct Authority’s new consumer duty rocket took-off for existing products and services across all authorised firms who have a material influence over retail customer outcomes.
The new consumer duty regulation is a combination of principle, cross-cutting rules, and expected outcomes framework that is underpinned by the concept of reasonableness.
Furthermore, on May 31 the European Securities and Markets Authority published and highlighted the importance of periodic independent reviews of cost and fee structures to ensure that investors are paying fees commensurate to the returns and risk profile of the fund.
The time to deliver data effectively with an emphasis on price and value reporting frameworks that demonstrate value delivered to customers is becoming increasingly important.
What is consumer duty and why is it important?
The consumer principle sets an overarching expectation to deliver a good outcome to consumers, the cross-cutting rules set anticipated behaviours, while the four desired outcomes for products and services, price and value, customer understanding and customer support, provides the rules and guidance representing key elements of the firm-consumer relationship.
The duty is designed to protect retail consumers by putting an obligation on firms to act in consumers’ best interests.
The duty applies to all FCA-regulated entities that have a material influence over retail customer outcomes across the distribution chain and throughout the full lifecycle of products and services.
Furthermore, it requires asset manager governing bodies to properly embed the duty by making senior managers accountable for the outcomes under the senior manager and certification regime.
Based on the broad summary of the regulation above, regulated firms and the FCA will have considerable challenges to monitor, supervise and enforce the new consumer duty regulation.
Moreover, ensuring success will require significant cultural and behavioural changes, for example, in addition to reactive tracking, firms will now have to undertake extensive proactive testing and tracking of outcomes for both existing and vulnerable customers.
The implementation challenge
The FCA required all firms to be substantially ready by July 31 and expects boards to take full responsibility for ensuring the duty is properly embedded and senior managers are fully accountable throughout the lifecycle of products and services.
This is not a straightforward process, for example the distribution chain for products may involve multiple intermediaries comprising of platforms, financial advisers, who then service multiple retail customer groups.
