As part of a series of sector-focused Consumer Duty letters, the FCA has written to firms in the Consumer Investments sector to help them implement and embed the Consumer Duty effectively.
The letter provides general information to remind firms of the implementation timeline and key elements of the Consumer Duty, but also focuses on how it applies specifically to firms in the sector, the FCA's associated expectations and practical examples of good and poor practice.
The FCA sets out four initial areas where particular focus is needed in light of its Consumer Investments strategy and the harms in the sector:
- Mainstream investments: the FCA states that it will be paying particular attention to how platforms, wealth management firms and financial advisers deal with the price and value requirements of the Consumer Duty. Another area of focus should be the speed of transfers between investment platforms and the support provided to non-advised consumers.
- Higher risk investments: the FCA remains concerned that some consumers continue to be invested in unsuitable high risk investments. Of particular concern is the potential for the design of trading apps to lead to poor consumer outcomes and the inadequate oversight of (especially unregulated) introducers.
- Scams and fraud: the FCA is clear that firms need to act to avoid causing foreseeable harm to their customers and take appropriate action to help stop consumers falling victim to scams and fraud.
- Consumer redress: the FCA expects firms to act in good faith when they identify they have caused harm (either though action or inaction), and to take appropriate proactive action to rectify the situation, which may include redress.
The letter includes an annex working through some of the FCA's expectations in more detail. The FCA's "concerns" and "expectations" are grouped by the relevant Consumer Duty outcome, effectively providing an additional reference point for firms considering the application of the outcomes. Some of the more notable points made include:
- A reminder in relation to the products and services outcome that compliance with PROD alone is unlikely to mean that a firm is complying with the Consumer Duty as a whole.
- An expectation for firms to carry out adequate due diligence of any investments they provide access to, even where an adviser has asked for an investment to be added to a SIPP or other investment platform.
- The need for firms assessing the price and value outcome to bear in mind the fees customers may pay elsewhere in the value chain.
- In the context of the consumer support outcome, the observation that firms should not be reticent to provide support simply because they are being overly cautious about approaching the boundary between regulated financial advice and guidance.
The FCA reiterates that for many firms the Consumer Duty will require a cultural change and a shift to working proactively to deliver good customer outcomes rather than just avoid bad ones.
The letter is a significant additional resource for firms in the sector and is worth careful review given the FCA's reminder that it may ask for evidence of how firms have made the necessary changes not just in light of the Consumer Duty as a whole but specifically this letter.
Firms will need to pay as much attention to good consumer outcomes as they would to any other significant aspect of their business, such as their level of profit and loss.