The UK Financial Conduct Authority (FCA) yesterday released final rules and guidance for a new Consumer Duty that requires firms to act to deliver good outcomes for retail customers. While the regimes are different, we expect this final FCA position will heavily influence the New Zealand Financial Markets Authority's (FMA) expectations and guidance in relation to the Financial Markets (Conduct of Institutions) Amendment Act 2022 (COFI Act).
We therefore recommend that this FCA material should be considered by New Zealand registered banks, licensed insurers, and licensed non-bank deposit takers assessing how to pivot their existing conduct and culture programmes into a COFI "fair conduct programme" and/or wanting to commence further gap analysis work to support their transition to the COFI regime. The FCA materials may also provide a useful comparison for those engaging with the FMA on what guidance on COFI would be helpful in a New Zealand environment.
The FCA final rules and guidance can be found here and a short summary of some of the key soundbites on how the FCA is approaching the Consumer Duty are set out below. The FCA's guidance document itself contains more detail and specific examples.
FCA consumer principle
The FCA emphasises that firms should embed a focus of acting to deliver good outcomes in each of their business functions and put customer interests at the heart of their business model and culture. This ranges from high-level strategic planning to individual customer interactions, as well as product and service development, sales and servicing, distribution, support, and risk and control functions.
The Consumer Principle, Principle 12, requires firms to ‘act to deliver good outcomes for retail customers’ and the FCA describes that this requires firms to:
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proactively act to deliver good outcomes for customers generally and put customers’ interests at the heart of their activities;
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focus on the outcomes customers get, and act in a way that reflects how consumers actually behave and transact in the real world, better enabling them to access and assess relevant information, and to act to pursue their financial objectives;
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ensure they have sufficient understanding of customer behaviour and how products and services function to be able to demonstrate that the outcomes that would reasonably be expected are being achieved by those customers;
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where they identify that good outcomes are not being achieved, act to address this by putting in place processes to tackle the factors that are leading to poor outcomes; and
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consistently and regularly challenge themselves to ensure their actions are compatible with delivering good outcomes for customers.
FCA articulation of improvement in good outcomes
The FCA has provided the following description of what it will be looking at in terms of improvements in consumer outcomes:
Fair value: Consumers pay a price for products and services that represents fair value and poor value products and services are removed from markets leading to fewer upheld complaints about poor value and unexpected fees or charges.
Suitable products and services: Consumers are sold and receive products and services that have been designed to meet their needs, characteristics and objectives leading to a reduction in the number of upheld complaints about products and services not working as expected.
Suitable treatment: Consumers receive good customer service leading to a reduction in upheld complaints about switching, cancellation and service levels and customers having higher levels of satisfaction with the service they receive.
Confidence: Consumers increase their confidence in financial services markets and are equipped with the right information to make effective, timely and properly informed decisions about their products and services.
Measuring Success
The FCA has said that it will measure the success of the Consumer Duty by monitoring key outcomes for consumers. Examples given are the FCA:
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monitoring Financial Ombudsman Scheme final decisions on complaints;
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continuing to conduct its "Financial Lives Survey" to ascertain what products and services consumer use, and measure what consumers are seeing and feeling and their levels of trust and confidence; and
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using data from a variety of sources, including firms' own management information and complaints data.
In relation to the second bullet above, we understand that the FMA itself is due to release findings from a consumer survey undertaken in New Zealand shortly.
Please get in touch with one of our experts if you wish to discuss your transition to the COFI regime.