Given the effort to be ready for the Consumer Duty implementation deadline in July last year, and the consequences of the FCA’s emphasis on the Consumer Duty not being a “once and done” exercise, there is a risk of firms falling behind in preparations for the closed products implementation deadline of 31 July 2024. 

However, the FCA has stressed (including in its December webinar on Consumer Duty: The Next Steps) that it is taking closed product implementation seriously and that firms must make sure they are on track to meet the deadline.

The FCA has also published a speech delivered on 20 February 2024 by Sheldon Mills (Executive Director, Consumers and Competition) which addresses some of the main challenges firms have identified around closed products. 

Reminder: what are closed products?

To recap, closed products are those no longer marketed or distributed to retail customers nor open to renewal. The Consumer Duty has been described as applying to these products “in full” but not “in the same way”. 

This effectively means that the same standards and expectations will be demanded as for live products, save that some aspects will not inherently be relevant. For example, as there would be no further sales, there are no requirements for firms to have a target market or distribution strategy for the product or service. Firms are otherwise required to do a thorough and ongoing assessment to ensure their closed products deliver the right outcomes for consumers. 

Questions to consider

The FCA has posed a number of questions for firms to consider as part of their preparations:

• Could any aspects of the design of my closed products lead to foreseeable harm or frustrate customers pursuing their financial objectives?
• Are customers with closed products receiving the support they need, when they need it, as well as communications that they actually understand?
• Do my closed products offer fair value? 
• Considered in the round, are the benefits that those products deliver reasonable compared to the price and the cost to consumers?

Challenges

For some firms, closed product implementation will present a real challenge, both in terms of the number of products and their age, as well as close understanding of them in the business and the ability to make changes. This may involve navigating the constraints of policy wording and legacy systems. 

In this context, firms should note the FCA’s emphasis on prioritisation and focusing on the products with the greatest risk of harm or the biggest gaps. The February speech refers in this context to “a risk-based approach to prioritisation”. Of course, this prioritisation task in itself may well be a challenge. The FCA suggests looking at why products were closed in the first place: if it was due to volume of complaints or poor value for money, then those products should rise up the priority list. Although, again, this may present its own challenges if the reason is no longer known. Another approach could be to focus on more complex products first which are more likely to require significant work ahead of the deadline and coule pose greater risks to consumer outcomes. 

The February speech by Sheldon Mills notes that the main challenges for firms include:

• being able to evidence the delivery of good outcomes for consumers, and addressing gaps in customer data held;
• determining fair value on closed products; 
• taking action relating to less engaged and the “gone away" customers, including the support offered and how firms assess whether these customers understand the products they hold; and 
• ensuring that the design of products and services deliver good consumer outcomes over the long haul, even where the firm has vested rights. 

More to be done

The FCA does acknowledge the complexities here and the challenges of closed product implementation for the life sector in particular. There is an expectation of potential issues with the fair value of closed products, and in the December webinar the FCA specifically encouraged insurers to approach the FCA with their issues on the basis that multiple firms are likely to be facing similar concerns. The February speech reiterated that if firms are experiencing problems, the FCA would like to hear from them sooner rather than later. However, firms are still expected to have “a clear roadmap” to comply with the Duty by the deadline for closed products.  

While closed products may be a bigger issue for some firms than others, there is likely to be much work still to be done overall, and the messaging from the FCA remains clear.