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Understanding FCA Consumer Duty Regulations: A Guide for Brokers

As a business operating in the financial services industry, it is crucial to stay informed about regulatory changes that affect your business and the way you interact with your clients. One such notable change is the introduction of the FCA Consumer Duty regulations, wide-ranging new requirements which impacts all aspects of the firm’s operation. With such a complex shift in regulatory standards, our consultants set out to provide as much support as possible to firms. In this article, we explore what the FCA Consumer Duty entails, discuss the requirements for brokers, and provide guidance on how to navigate these new regulations. If you find yourself struggling with compliance or have questions, do not hesitate to reach out to RRCA, where our expert consultants, are ready to assist you.


Understanding the FCA Consumer Duty:

As most of you already heard it, The FCA Consumer Duty regulations were introduced by the Financial Conduct Authority (FCA) to enhance consumer protection and foster better outcomes for customers, or to put it differently, proactively support customers in achieving their financial goals. These regulations place an increased emphasis on the duty of brokers to act in the best interests of their customers, treating them fairly and providing suitable products and services.


The Consumer Duty introduces a unique aspect that sets it apart from other regulations. Its focus lies in the imperative of consistently delivering "a good outcome" in every interaction between customers and your firm. Unlike other regulations, this measurement is often unquantifiable by traditional standards (such as mere reliance on compliance data), and amongst other difficulties, it relies a great deal on interpretation.


Considering the lack of measurable outcome set forth by the FCA, brokers will also have to content with the inherent requirement of being ‘proactive’. Put differently, it is no longer sufficient to ‘avoid causing harm’ and instead need to proactively monitor for emerging harm.


The difference between Treating Customers Fairly (TCF) and Consumer Duty

The Treating Customers Fairly (TCF) was established by the FCA in 2006, and aimed to address the challenges consumers face in navigating a complex marketplace. It sought to ensure that financial firms supported their customers in making informed financial decisions. TCF focused on fair treatment, highlighting the process of supporting customers throughout their journey with the firm, from sales to cancellation.

However, the upcoming introduction of the Consumer Duty by the FCA signifies a higher level of customer protection. The Consumer Duty represents a transition from solely supporting customers to providing them with benefit-focused outcomes. It goes beyond fair treatment and places a stronger emphasis on the actual results and benefits experienced by customers.


This is why, under the Consumer Duty, financial firms are expected to deliver tangible benefits to customers, not just meet minimum compliance requirements. These benefits encompass the entire customer experience, including the suitability and quality of products, the level of customer service provided, and the ongoing support offered after the purchase. The focus shifts from demonstrating fairness to ensuring that customers genuinely benefit from their interactions with financial firms.


While TCF aimed to support customers in decision-making, the Consumer Duty demands that financial firms proactively deliver benefit-focused outcomes. This represents an elevation of standards and a heightened commitment to the overall well-being and satisfaction of customers.


Requirements for Brokers:

Brokers must prioritise the best interests of their customers when providing advice or making recommendations by establishing what good looks like! As mentioned above, the Duty’s primary objective is to ensure firms deliver on their promises and thus ensure that customers receive the benefits they were promised.


This means, firms need to establish what good looks like (as an overall value). In turn, explore the entire consumer journey and decide how the high level ‘what good looks like’ is met in those segments. Furthermore, firms cannot forget about the critical aspects of ‘record keeping’ and ‘proactive monitoring’ of each segment of their customer journey/The FCA is actively sharing best practices and working towards establishing clearer guidelines to demonstrate compliance. However, this necessitates reconfiguring systems and establishing infrastructure capable of measuring intangible factors.


Consequently, there is no room for delay in preparing for the implementation deadline in July of this year. It is crucial to capture and analyse the outcomes of all customer engagements, requiring a comprehensive audit and understanding of the entire customer journey. Any areas where the desired outcomes cannot be substantiated must be identified, and the integration of systems capable of showcasing success becomes imperative.

This requires conducting a thorough assessment of a client's circumstances, needs, and objectives before offering any products or services. The Consumer Duty aims to put the customer’s financial welfare at the centre of insurance operations.


Here is how:

Product and Services: The most critical component of the Duty is the product. Firms need to ensure that they understand how the financial product work, what its intended target market is and how it delivers the stated benefits. This should not be new to the insurance sector, particularly as product value specific rules have been introduced for some time now. Please ensure you have a copy from your insurer/MGA (or if you are one of them, you do provide it).

Once you cleared the PROD requirements, you need to turn your attention to your services. From customer care, through advisory to termination. All customer touch-points (including all communication channels) must be considered.


Communication and Transparency: The FCA Consumer Duty emphasises the importance of clear and transparent communication with clients. Brokers should provide all necessary information about products and services, including their features, risks, and costs, in a way that is easily understandable by customers. To this end, you need to consider how you will pro-actively evidence compliance. If you are manufacturer, have you tested the product literature to ensure it is clear, fair and non-misleading, along with the new standard of capable of being understood (including the requirement of providing the right information at the right time)?


Avoiding Conflicts of Interest: Brokers must identify and manage any conflicts of interest that may arise during their dealings with clients. It is essential to ensure that recommendations are made based on the client's best interests, rather than being influenced by any potential conflicts.


Ongoing Reviews and Monitoring: The FCA expects brokers to regularly review their client's circumstances and financial objectives to ensure that the products and services provided remain suitable. This ongoing monitoring enables brokers to identify any necessary changes or adjustments to maintain the best outcomes for their clients.


General Compliance Framework: As you already know, it is not that simple. The Duty bring a range of extremely granular requirements for firms, most which will be unique to only them. To ensure you comply with the spirit (and letter) of the requirements, once you understood the entire customer journey (and associated product value), you need to consider how your will control process risk. This is to include, whether your policies are sufficiently robust to control the Duty originated risk (thinking of the new requirement of being ‘forward looking’), whether your suite of Conduct MI (aka management information) is sufficient to inform the Senior Manager responsible (SMF) about Duty compliance; and above all, you remain sufficiently resourced.


How RR Compliance Consultants Can Help:

At RR Compliance Consultants, we understand that navigating regulatory changes and ensuring compliance can be challenging. That is why our expert consultant, Roland Romata, is here to assist brokers like you.


For Insurtech businesses or start-up companies, RR compliance can serve as an invaluable resource. As an established compliance consulting firm, we know how to navigate the regulatory frameworks and can provide the expertise needed to ensure compliance with the customer duty regulations.


Our in-depth knowledge and experience can guide and support your businesses offering tailored solutions and strategies to meet the requirements needed to enter the insurance space helping your business to mitigate the risk of non-compliance, establish robust processes, and gain the confidence and peace of mind necessary to focus on your core operations and innovation without the burden of navigating complex regulatory landscapes.


Our services include:

Compliance Assessments: We will conduct a thorough review of your existing practices and procedures to ensure they align with the FCA Consumer Duty regulations. This assessment will identify any areas of non-compliance and provide recommendations for improvement.

Policy and Procedure Development: We can assist in developing comprehensive policies and procedures that reflect the requirements of the FCA Consumer Duty. These documents will serve as a framework for your business operations, ensuring adherence to regulatory guidelines.

Training and workshops: Our team can provide tailored training sessions to educate your staff about the FCA Consumer Duty regulations and their implications for your brokerage. This training will empower your team to make informed decisions and act in the best interests of your clients.

Ongoing Support: Compliance is an ongoing process, and we will be there to support you throughout your journey. We offer regular updates on regulatory changes, advice on implementation strategies, and assistance in resolving any compliance issues that may arise.

Conclusion:

The FCA Consumer Duty regulations are a significant development that brokers must embrace to maintain regulatory compliance and enhance customer outcomes. By understanding and adhering to these regulations, you demonstrate your commitment to treating customers fairly and acting in their best interests.


If you find yourself struggling to navigate the complexities of the FCA Consumer Duty regulations, RR Compliance Consultants is here to help. Our expert consultant, Roland Romata, combines approachability with extensive compliance knowledge to guide brokers through these regulatory changes. With a suite of comprehensive services, including compliance assessments, policy and procedure development, training, and ongoing support, we can ensure that your business meets the requirements of the FCA Consumer Duty and operates in the best interests of your clients.


Do not let regulatory challenges hinder your business's success. Contact RR Compliance Consultants today to schedule a consultation with Roland Romata and take proactive steps towards compliance and client-focused operations.



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