Regulatory Priorities for Consumer Investments

The FCA’s Deputy CEO Sarah Pritchard states “Our goal is simple: less intensive attention on firms doing the right thing, and stronger, faster action where harm is greatest”

The FCA’s wants to take a proportionate and risk-based approach which demonstrates the desire to raise standards across the market. Firms taking the right action are able to benefit from less scrutiny, enabling the FCA to focus on a greater cross-section of the market to drive:

1. A stronger investment culture
2. Strengthen trust;
3. Secure good customer outcomes; and
4. Strengthen financial crime controls.

These priorities are heavily interwoven, with the FCA identifying key areas of Consumer Duty to drive the required outcomes. For example customer understanding and support have been identified as crucial to building a stronger investment culture, and fair value and good service as being critical to building consumer trust.

This article focuses on the actions firms should be taking to respond to the first three priority areas.

Building a stronger investment culture

The FCA expects firms to:

1. Give consumers clear, jargon-free information so they can understand the benefits, risks, and costs of investment products before they make any decisions.
2. Offer consumers products and services appropriate for their needs.
3. Enable consumers to make informed choices

Firms should consider:

• Reviewing the actions they are taking to phase in compliance with the Consumer Composite Investment rules (PS25/20). These rules provide a flexible and proportionate approach to customer disclosure whilst giving clear information to enable informed decision making. For some firms this will require significant changes.
• Reviewing their current financial promotions process, looking to leverage best practice and make enhancements where needed.
• Testing whether the information provided to consumers is easy to understand. This is particularly important for different groups of customers and when considering how one product is presented vs another. This testing is particularly important where customers are undertaking non-advised journeys online or where customers are prompted through the incoming Targeted Support process;

Strengthening Trust

The FCA expects firms to:

1. Address emerging risks promptly.
2. Ensure new products and technologies are appropriately assessed so they deliver good customer outcomes and contribute to stronger financial resilience.
3. Deliver fair value.
4. Provide a good service, including efficient product transfers.

Firms should consider:

• An independent review of their transfer process to identify opportunities for improvement – this should look at regulatory requirements, operational processes, data and technology to ensure a rounded view of enhancements.
• Whether the current risk and governance framework has kept pace with the firm’s growth and development. Are enhancements needed? Can you evidence appropriate controls if your firm has grown in size? Can the firm evidence actions that have been taken to reduce emerging risks?
• Whether AI governance frameworks put customers at the heart of key technology development decisions? Are first line risk and compliance engaged appropriately?

Securing good customer outcomes

The FCA expects firms to:

1. Design products and services that meet consumers’ needs and monitor outcomes.
2. Evidence that products provide fair value by assessing costs and value.
3. Be careful about opting clients out of retail protections and only do so in line with the rules.
4. Delivering a good service to customers in a variety of vulnerable circumstances.

Firms should consider:

• Having an independent review of their product governance to ensure customer needs are clearly being identified, different customer personas are considered, including a range of different vulnerabilities, outcomes are clearly articulated and aligned to the monitoring that is taking place.
• Challenging themselves on price and fair value, particularly looking at charges that are applied across the distribution chain, and the value that is delivered. Does the charging structure work across a range of customer types? Are there appropriate controls in place to remove charges where there is diminishing value?
• Whether they have appropriate evidence to demonstrate compliance with the current opt-out process that removes retail protections.
• Reviewing their vulnerable customer policies, frameworks and how adaptions and support has been made available across the end-to-end customer journey. In particular, how customer outcomes for vulnerable customers are differentiated and monitored.

Reducing regulatory risk now

Whilst the FCA Priorities promise greater clarity this year on accountability across distribution chains, expectations of Financial Promotions, ongoing cost disclosure reform, simplification of advice rules amongst many other things….expectations under existing regulations remain high and heavily driven by Consumer Duty.

Firms should be analysing their core strategy to ensure:

1. Growth is sustainable;
2. Supported by an appropriate risk and governance framework;
3. Technology enhancements are made to benefit customers as well as create efficiency; and
4. Outcomes are monitored and actively managed for all customers.

Konexo is able to bring together technology, data, regulatory consulting and legal  capabilities to support clients with assurance and outcomes monitoring, implementing regulatory change and transforming customer journeys and operational processes to meet FCA expectations.