Open Product Reviews
The Consumer Duty – the cornerstone of the FCA’s three year strategy – aims to set higher standards across Financial Services. The FCA are keen to keep firms on track with the implementation, on the understanding that if the industry gets the Consumer Duty right first time, that could mean less regulator involvement in the long term.
As such, the Regulator has published a review of sample implementation plans. While the review shows that firms are committed to delivering on the aim of the Duty, there is some evidence that some firms are behind on their planning. The good news is that so far, the FCA is pleased with a lot of the work that has happened to date, highlighting that the shift to focus on consumer outcomes and work to engage with the substantive requirements is, in general, going well.
The Regulator understands that while some firms have operated in lock step with where the Duty wants Financial Services to be for some time now, others will need to make more significant changes. Its findings show that some firms are further behind than the Regulator expected, meaning a future struggle to embed the Duty effectively.
The FCA suggest that firms need to:
Prioritise – focus on the areas that will make the biggest impact for customers
Make the changes needed – particularly around communications and ensuring that products and services meet customer needs and offer fair value
Work with other firms – share information to make sure they are all delivering good customer outcomes.
One of the next milestones is open product reviews. For manufacturers, these should be completed by the end of April. The product reviews are a critical step in the Duty; if any issues are discovered then they need to be mitigated before the product or service can be sold. At this point in the life of the Duty, firms also need to address any potential harms to customers with current contracts.
In practice, these reviews need to fully consider all aspects of the product itself, including potential and actual risks including any risk events, the target market and their needs, testing activities, the activities of distributors and customer support activities. Findings should be collated and assessed, on which the final assessment of the product is based – this should cover justification of the price with reference to fair value, the product benefits, ability of customers to use the full benefits, and the mitigation of potential or actual harms.
With the FCA keen to understand how firms are implementing the Duty, a clear audit trail that each product and service has been reviewed is crucial. Evidence will need to show that the reviews have been at least comprehensive enough to understand whether all foreseeable harms have been identified and understood, and what steps have been taken to mitigate those harms.
Processes for these product/service reviews must be embedded into the governance framework, into customer service processes, and into management information practices.
Most of the requirements for the product reviews are set out in PRIN 2A.3, which will be published in the Handbook on 31 July. Although most aspects of the review are covered, the FCA will expect that firms take the lead and adjust the reviews to take their business and any quirks of the individual products into account. We have created a template open product review including all required content: Consumer Duty: Open Product Review Template.