Taking the consumer duty seriously

Has the industry underestimated the consumer duty in terms of the scale of the challenge it presents for the protection sector?

We know the time and effort it’s taking in terms of workload and workstreams at Guardian. We produced our implementation plan and completed our gap analysis last year. We’re now in the process of collating the required evidence and, at least as importantly, considering how we communicate and share information with intermediaries as well as how we work with them so that we all apply and comply with the duty.

Yet we don’t think complying with the duty should be viewed as merely another, albeit substantial, programme of regulatory work or indeed a ‘tick-box’ exercise.
 

When we launched Guardian, we identified where the protection market was falling short in its offer to customers, one such example being clarity of definitions that would pay out when customers expected them to pay out.

Getting our heads around what it really means

It’s often suggested that reforms like this are designed to bring about a change in culture. In this instance, cultural change is absolutely core to what the regulator is trying to achieve.

In addition, compliance with the duty needs to be translated into a series of actions or steps. Even a relatively new company like Guardian, which was set up with good customer outcomes at its core, isn’t able to just say “it complies” without going through a robust process to determine where it does and doesn’t deliver according to the FCA’s rules. It also helps to recognise what the duty doesn’t involve.

It’s not just about a specific set of new rules and guidance, it’s more than that, it’s about continuous improvement to achieve higher and clearer standards of consumer protection across our industry.
However, there is a blueprint. To recap, there are four outcomes the FCA wants to see under a new Consumer Principle.

Consumer understanding – consumers are equipped to make good decisions. Information is made available at the right time and is understandable.

Price and value – products and services should be sold at a price that reflects their value. There should be no excessively high fees.

Product and services – the firm’s products and services should be fit for purpose; terms should match the target consumer’s needs and products and services work as expected.

Consumer support – customer service should be responsive and helpful. It should be as easy to complain about or switch and cancel products or services as it is to buy them.
There are cross cutting rules to apply when pursuing these outcomes – that firms should act in good faith, avoid foreseeable harm for clients, and help consumers achieve their financial objectives.
Don’t be complacent

These headline requirements may be a little daunting, given that firms have to assess and evidence how they meet them.
And there may be a temptation for well-run businesses to give themselves a clean bill of health for the understandable reason that they have always been customer-centric and focused on providing and obtaining good outcomes for their customers.

It may be even more of a temptation where you are meeting your clients face to face every day in an advisory firm and can receive immediate feedback. Yet we don’t believe this negates the need for every firm involved in protection to carry out a formal review, a gap analysis and provide evidence of how they meet each rule.
Our own position may be helpful.

When we launched Guardian, we identified where the protection market was falling short in its offer to customers, one such example being clarity of definitions that would pay out when customers expected them to pay out.

Because of this, we felt we were in a good position when the regulation first came out, but we’ve still had to go through each and every rule to make sure we’re evidencing how we’re meeting the duty.

FCA concerns
In addition, the FCA sounds a little frustrated with progress to date. In its recent ‘Dear CEO’ letter to manufacturers, the regulator stressed the importance of the implementation timelines and expectations of how firms should embed the duty.

And in a recent speech, FCA executive director for consumers and competition Sheldon Mills said that “some initial efforts appeared superficial while others were overconfident in their existing systems.” The FCA cited one board that had asked just one question before agreeing its consumer duty strategy. Mills also noted some businesses had not focused on how they would work with other firms along the manufacturing and distribution chain. It has looked at 60 companies so far and will look at a further 600 in the next phase.

Therefore, we see the end of April deadline when manufacturers must “share with distributors the information necessary for them to meet their obligations” as a crucial date. It is not just a matter of big firms – lenders, insurers, fund managers, platforms and more – sending a load of information to intermediaries. It’s about exchanging information to make sure everything, and everybody, is aligned.

We want the new duty to work for our customers and your clients and therefore for all our businesses too.

We’ll be in touch.