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Dear Ceo Letter Implementing Consumer Duty Closed Products Services Asset Management

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23 views4 pages

Dear Ceo Letter Implementing Consumer Duty Closed Products Services Asset Management

Uploaded by

mateoriveracontreras
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

16 May 2024

Dear CEO/Director,

Implementing the Consumer Duty for closed products and services by 31 July 2024

The Consumer Duty (the Duty) sets higher standards for retail financial services customers. It
is a core part of the FCA’s strategy and gives effect to the cross-party mandate we were given
by Parliament through the Financial Services Act 2021.

Following publication of the Finalised Guidance in July 2022, the Duty came into force for open
products and services in July 2023. We thank firms for the efforts they have put into their
embedding work over the past two years. The Duty provides a valuable opportunity to improve
confidence in the financial services industry and support innovation, healthy competition and
growth. We have seen many firms embrace the shift the Duty brings, driving culture change
and delivering good outcomes for consumers.

We gave firms an additional year to apply the Duty to closed products and services. This
extension is designed to help firms with large numbers of closed products manage
implementation at the same time as continuing to advance and learn from their work on open
products and services.

In advance of the rules coming into force for closed products and services on 31 July 2024 we
are writing to firms to support them in their final preparations. This letter sets out:

• application of the Duty to closed products and services;


• priority issues that are particularly acute or widespread in closed products and services;
• action prompts to ensure firms are prepared for the 31 July 2024 deadline for closed
products and services (our website gives examples of good and poor practices for open
products and services); and
• a reminder, in Annex 1, of the definition of closed products and services and an
overview of the rules.

1
When the Duty comes into force for closed products and services firms need to make sure, and
be able to show us, that they are acting to deliver good customer outcomes. We will be
proportionate to the harm – or risk of harm - to consumers, prioritising the most serious
breaches and acting swiftly and assertively.

We expect firms’ senior management to carefully consider the contents of this letter and take
steps to ensure their firm is compliant with the Duty by the deadline. We understand firms in
some sectors may have no or very few customers with closed products and services, but we
are circulating this letter widely to help firms consider broader distribution chains.

Application of the Duty to closed products and services

Firms must review closed products and services against all aspects of the Duty before 31 July
2024 and then on an ongoing basis. Boards will need to satisfy themselves that their firms
have prepared adequately for the 31 July 2024 implementation deadline.

The Duty applies in full to closed products and services from the deadline. It does not apply to
the past actions of firms. Instead, it applies to the ongoing actions of firms from 31 July 2024.
For example, communications issued by the firm from 31 July 2024 for a closed product or
service will need to comply with the Duty’s higher standards.

However, there are some differences in the way the rules apply compared to products and
services that are open for sale or renewal.

Importantly, the products and services outcome does not apply in the same way for closed
products and services. For example, as there would be no further sales for a closed product or
service, there are no requirements for firms to have a target market or distribution strategy, as
there are for open products and services.

We cover other issues, such as how firms should consider fair value for closed products and
services, and how the Duty applies where there are vested rights, below. In addition, see
Chapter 3 of our guidance for firms on how the Duty applies to closed products and services.

Priority areas for firms to consider

With less than 3 months to go until the closed product deadline, we highlight below 5 key
themes firms should already be considering. While these issues are not unique to closed
products and services, they are likely to be more widespread or acute. This list is not
exhaustive, but draws on our supervisory insights, together with feedback given to us through
our engagement with firms, trade bodies and other stakeholders:

1. gaps in firms’ customer data


2. fair value
3. treatment of consumers with characteristics of vulnerability
4. gone-away or disengaged customers
5. vested contractual rights

2
We want to thank those firms that are on track to comply with the Duty for closed products by
31 July 2024. For those with work to do, there is time to make any changes necessary. That
includes ensuring both that your firm is compliant for its own activities and that it shares
relevant information with other firms in its distribution chain to enable them to comply.

For more information:


• Read our Finalised Guidance and
• Visit our Consumer Duty homepage which has more information about the Consumer
Duty, on-demand webinars and podcasts, and the option to sign up for email updates.

If you feel your firm will not be substantially compliant by the July 2024 deadline, and/or if
there are any significant issues that come to light you should contact us via your normal
supervisory contact at the FCA as soon as possible. For the Supervision Hub please contact
[email protected].

For any areas of non-compliance, our expectations are that:


• Firms should be prioritising their reviews and taking actions in areas where there is the
greatest level of harm / potential for harm. As part of this prioritisation, they should
consider where such harm might be affecting vulnerable customers.
• Firms should have clear, timebound, resourced plans to address any gaps in implementing
remedies where they have identified these are needed to ensure good outcomes.
• Firms should put in place clear mitigations to protect customers from known or possible
harms in the period until they have fully implemented identified improvements.
• Firms' governing bodies should challenge their businesses on all the above.
• Firms should consider assurance work via an independent function, such as their internal
audit function, on how they are implementing the Duty in due course.

Yours faithfully

Sheldon Mills
Executive Director of Consumers & Competition

3
Annex 1 – Definition and overview of the rules on closed products and services

For the purposes of the Duty, a closed product or service must meet both of the following
criteria:

1) there are existing customers who took out a contract before 31 July 2023, and
2) the product or service hasn’t been marketed or distributed (including by renewal) on or
after 31 July 2023

Importantly, a product that was closed to new customers on or after 31 July 2023 is not a
closed product for the purposes of the Duty. These products became subject to the Duty on 31
July 2023.

Examples of closed products and services might include: life insurance portfolios that have
been acquired from other firms, a mortgage lender that has exited the equity release market
but still has existing customers, an easy access savings account which is no longer on sale to
new customers, or a 5-year structured product sold in 2022, with terms and conditions that
aren’t replicated into new launches.

An example of a closed service would be where a wealth manager used to have a mass affluent
managed portfolio service as well as a separate high net worth service with different terms and
conditions. Sometime before 31 July 2023, it chose to focus only on high-net-worth investors.
It continues to manage portfolios for existing mass affluent customers but hasn’t accepted any
new mass affluent customers since the Duty came into force on 31 July 2023. The mass
affluent service therefore meets the conditions to be a closed service.

Conversely, products and services that are unlikely to meet the closed product definition (and
for which the Duty is therefore already in force) include: new issues of savings accounts or
mortgage deals which have broadly the same terms and conditions but with different interest
rates.

The Duty applies to both closed products and closed services. Services include those involved
in carrying on a regulated activity or activities connected to providing a payment service or
issuing electronic money. This covers all services including, for example, a distributor’s sales
processes, operating an investment platform, operating a model portfolio service, debt
counselling services and arranging transactions.

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