Article written and provided by Aviva
On 27 July 2022, the FCA set out the final rules and guidance for a new Consumer Duty. This will set higher and clearer standards of consumer protection across financial services, requiring firms to put their customers’ needs first.
What is the implementation timeline?
31 October 2022 – Implementation plans approved by Boards
31 April 2023 – Complete reviews against four outcome rules and share the necessary information for them to meet their obligations
31 July 2023 – Implementation for existing products
Who is responsible for complying with Consumer Duty?
The level of responsibility depends on the firm’s actual role and influence, not just what’s set out in contractual terms between firms in the chain. There will be some areas where the manufacturer is responsible and other areas where the distributor is responsible. Customers can seek compensation from those directly responsible. However, the Duty expects both manufacturers and distributors to work together in key areas, supporting good customer outcomes along the entire journey.
We’ve explored some of the Consumer Duty outcomes’ key features, but this is not a complete list!
Outcome 1: Product and services
Manufacturers like Aviva are responsible for approving, testing and regularly reviewing their products/services. Generally speaking, these processes will already be in place, but Consumer Duty will drive enhancements such as more detailed requirements to identify a target market. This will include considering vulnerable customers.
Distributors must verify that they are only distributing the Equity Release product to the identified target market. To support product reviews carried out by manufacturers, a distributor must, when requested, give manufacturers relevant information including, where appropriate, sales information and details regarding the regular reviews of the product distribution arrangements.
In practice, it is in all our interests, including the customers’, to ensure customers and distributors fully understand the target markets, so we can all deliver good customer outcomes. Parties in the distribution chain must share information with one another so they can ensure they’ve all completed their part of the process.
Outcome 2: Price and value
Firms must analyse whether the price of products or services provide good value.
Manufacturers’ assessments must consider:
- the nature of the product
- any limitations of the product/service
- the expected total price consumers will pay
- any potential vulnerability in the target market.
Distributors must consider the impact of distribution arrangements (including payments) on value.
Outcome 3: Consumer understanding
In addition to ensuring communications are clear, fair and not misleading, firms must equip consumers to make effective, timely and properly informed decisions.
Firms should consider the information needs of their existing and prospective customers.
Firms are required to test customer communications to ensure they enable consumers to make effective decisions. Approaches to testing should be balanced. The Equity Release mortgage product often includes complex material terms and conditions that can be hard for more vulnerable customers to understand.
Outcome 4: Consumer support
Customers should be able to use products and services as reasonably anticipated and should not face unreasonable barriers (including unreasonable additional costs).
Firms are expected to monitor whether they are providing the right level of support.
This outcome is not limited to after-sales services or a particular department within firms (e.g. customer service). Firms need to ensure they are giving support during all points of pre-sales, transaction and post-sales services.
In general, it should be ‘at least as easy’ to exit a product/service as it is to enter it.
So, what questions should you be asking yourself ahead of July 2023?
- Have you completed your gap analysis and are you tracking actions to close any gaps ahead of the July 2023 deadline?
- What is the outcome of the manufacturers’ fair value assessments – have you asked? You should get enough information from the manufacturers on the fair value of the product to understand the outcome of the assessment. Do you understand the characteristics, objectives and needs of the target market and the benefits to your customers?
- What process do you have to regularly review distribution arrangements, including assessing sales to identified target markets and the action you will take if an issue is identified?
- What are your key customer journeys and do you have the MI to monitor outcomes?
- What communications do you have and do they need testing?
- When a manufacturer asks you for information to support their product reviews, what and how will this be provided?
- How do you identify vulnerable customers and ensure they understand the product and are supported? For example, how does the cost of living impact current and future customers and do your processes and controls (and MI) support these customers?
- Finally, do you your complaints tell you anything that you may have missed or should be improving?
We’re in the process of working through the new Consumer Duty rules, to fully understand the enhancements to Fair Value assessments and how we communicate these to distributors. We will implement the changes by April 2023, meeting the regulatory deadlines.
Visit our Website for more information here.