The Financial Conduct Authority (FCA) has recently issued a series of 'Dear CEO' letters to guide firms ahead of the Consumer Duty's implementation for closed products and services. With the deadline set for July 31, 2024, these letters outline the FCA's expectations and provide a roadmap for firms to ensure compliance.
Understanding the Timeline and Scope
The Consumer Duty has been in effect for nearly a year, but only for open products and services. On July 31, 2024, referred to as CD Day, the Consumer Duty will extend to closed products. These are products or services with contracts made before July 31, 2023, that have not been marketed or distributed since that date. The FCA emphasizes the importance of readiness among firms.
Recipients of the Letters
The letters were sent to CEOs of various firms, including:
Asset Management firms
Consumer Finance firms
Consumer Investment firms
Life Insurance firms
Retail Banking firms
All other relevant firms
Key Themes and Priorities
The letters are designed to support firms in their final preparations for CD Day, highlighting five priority areas:
Gaps in Customer Data: The FCA stresses the need for improved data gathering, especially for closed products where customer interaction may be less frequent.
Fair Value: Firms must ensure a reasonable relationship between the price paid by customers and the benefits received. This involves assessing the total expected price and its fairness.
Treatment of Vulnerable Consumers: Firms must ensure that vulnerable customers are not adversely affected by product design. The FCA’s 2022 survey revealed that 47% of adults exhibit characteristics of vulnerability, underscoring the importance of this issue.
Gone-away or Disengaged Customers: The FCA expects firms to take actions to re-engage these customers and to be able to demonstrate these efforts, particularly for potential claims.
Vested Contractual Rights: While firms are not required to forfeit vested rights, they should consider alternative measures to prevent customer harm. This could include greater flexibility in customer engagement or enhanced support services.
Next Steps and Compliance
Firms must act to deliver good customer outcomes in line with the Consumer Duty's overall expectations and be able to provide evidence of their actions. The FCA has provided an additional year for firms to ensure closed products comply, leveraging the experiences gained from open products.
In the event of non-compliance after CD Day, the FCA will adopt a proportionate approach based on the harm or risk of harm to customers, prioritizing severe breaches and responding decisively.
Conclusion
As CD Day approaches, firms must focus on aligning their closed products with the Consumer Duty requirements. The FCA's 'Dear CEO' letters serve as a crucial guide in this final phase, reinforcing the need for thorough preparation and diligent implementation. By addressing the key themes and ensuring robust customer outcomes, firms can navigate this regulatory milestone with confidence.
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