Introduction
The FCA’s Consumer Duty is live. This duty sets out higher standards of consumer protection for all firms that provide financial services to retail customers: the new bosses in financial services. The Consumer Duty requires firms to put the needs of their customers first, and the SMCR ensures that senior managers (the previous bosses) are accountable for the firm's compliance with the Consumer Duty.
Key SMCR responsibilities that are relevant to the Consumer Duty
Responsibility for culture and conduct
Senior managers have a responsibility to ensure that the firm's culture is focused on putting the needs of customers first. This includes ensuring that the firm has a robust whistleblowing policy and that it takes appropriate action in response to whistleblowing reports.
Responsibility for product design and distribution
Senior managers have a responsibility to ensure that the firm's products and services are designed and distributed in a way that is fair and transparent to customers. This includes ensuring that customers are given clear, accurate and timely information about the products and services they are buying.
Responsibility for customer outcomes
Senior managers have a responsibility to ensure that the firm delivers good outcomes for customers. This includes monitoring the firm's performance against the Consumer Duty outcomes and taking action to improve outcomes where necessary.
Acting in good faith towards retail customers
Senior managers must act in good faith towards their firm's retail customers and must avoid foreseeable harm to those customers.
Ensuring that products and services meet the needs of retail customers within a given target market
Enabling and supporting retail customers to pursue their financial objectives
Senior managers must enable and support their firm's retail customers to pursue their financial objectives. This includes providing customers with the information and advice they need to make informed decisions.
So, how do customers make informed decisions?
Thus, the power of financial promotions
Firms use financial promotions to market products and services to current and prospective customers. Firms are increasingly relying on social media and other forms of digital communication to promote such products and services. Firms approving financial promotions for communication through this type of channel are reminded of the FCA’s guidance (FG15/4).
On 8 June, the FCA published Policy Statement PS23/6 setting out its final position on the rules that will apply to firms promoting cryptoassets to UK consumers. All firms must be ready to comply when the rules come into force on 8 October 2023. The FCA has stated it will take swift, assertive action against any breaches it identifies so see our previous blog post on those rules.
When the FCA Intervenes (the risks of non-compliance)
The FCA has stated multiple times that it will be monitoring firms' compliance with the Consumer Duty and will take action against firms that fail to comply.
Firms should ensure that their senior managers are aware of their responsibilities under the Consumer Duty and the SMCR. They should also put in place systems and controls to help senior managers to meet their responsibilities.
When those senior managers or those systems and controls fail, the FCA has various powers of intervention at least on non-complying financial promotions.
It has recently published stats on FinProm interventions, which are summarized in this graph on the number of cases with interventions and amend/withdraw outcomes against firms breaching financial promotion rules. Retail investments and retail lending are the sectors with the highest amend/withdraw outcomes, totalling 70% of the FCA’s interventions with authorised firms.
FinProms to retail customers woven into the now-live Consumer Duty obligations is an important crossroads and one that SMFs must navigate carefully.
Conclusion
The Consumer Duty is a significant new regulatory framework that will have a major impact on the financial services industry. Senior managers have a key role to play in ensuring that their firms comply with the Consumer Duty.
By understanding their SMCR responsibilities under the Consumer Duty, senior managers can help to protect consumers and promote good conduct within their firms.
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