The FCA’s Future Plan
A few months back, the FCA announced its business plan for 2021/2022. In it, they explained how they see their future role and what they will do to measure their own performance. Details are provided by the FCA’s new CEO, Nikhil Rathi, who is forthright about the challenges they will face. Such challenges include Brexit, the post-pandemic recovery, technological change, the green transition and an expanded regulatory remit.
The total number of topics are highlighted on the landing page, which is as follows:
- CEO message
- FCA change/transformation
- Consumer priorities
- Enabling effective consumer investment decisions;
- Ensuring consumer credit markets work well;
- Making payments safe and accessible; and
- Delivering fair value in a digital age
- Consumer Duty
- Wholesale market and its priorities
- Diversity and inclusion
- Environmental, Social & Governance
- International priorities
- Financial resilience
- Op resilience
Rathi is quoted as saying: “Coronavirus has shown the need to adapt our priorities as the world changes. We often make complex trade-offs, so it’s important we clearly explain why we have chosen our main priorities.”
PGV: Ensuring Fair Value
On the 1st October 2021, new Product Governance Value (PGV) rules came into force in an attempt to reiterate the FCA’s drive towards fair value. The PGV show helps “consumers [to] trust that firms are offering long term fair value.” Key capacity providers are encouraged to consider the following criteria when delivering their direct value assessments (where they are the manufacturer), this includes:
- The nature of the product, including the benefits provided, their quality, and any limitations (for example, in the scope of cover, exclusions, excesses, or other features)
- The type and quality of services provided to customers
- The expected total price to be paid by the customer when buying or renewing the insurance and the elements that make up the total price
- How the intended distribution arrangements support, and will not adversely affect, the intended value of the product
It is worth mentioning that firms have a year from 1st October 2021 to conduct a product approval process for any existing products that do not fall within the current PROD scope. This includes updating their approval for any in-scope products to take into account the new requirements on fair value.
How else will the FCA’s new business plan impact retail businesses?
There are a series of consumer priorities that are set out, clearly stating the intent of the FCA.
- Enabling consumers to make effective investment decisions
The FCA is looking to improve firms’ conduct when consumers are informed and empowered to choose the right products and services for them at the right price.
They will, therefore:
- consult on changes to tighten rules for firms that approve financial promotions;
- launch a new 5-year campaign to inform consumers about high-risk investments;
- publish their ‘Consumer Investments Strategy’, setting out work they’ll deliver.
The tightening of rules for firms is surely going to see a shift in policies. Better informed decisions for consumers should lead to legitimate firms receiving custom rather than scammers.
- Ensuring consumer credit markets work well
The FCA wants borrowers to be treated fairly. They, therefore, aim to stamp out the poor practice in firms and encourage competition by:
- monitoring how firms support customers in financial difficulty;
- reviewing rules on debt advice to ensure consumers get high-quality service;
- working with the Treasury to develop new regulations for the Deferred Payment Credit sector;
- re-starting their postponed market study into credit information.
Competition can be healthy for business. A monopoly will only destroy it. So having retail firms compete against each other is great for the consumers and the firms themselves.
- Making payments safe and accessible
The FCA is concerned about crypto assets, which carry risks, as well as the pandemic’s impact on the financial strength of payment services firms. They, therefore, aim to:
- use targeted communications, proactive reviews of firms’ arrangements and safeguarding audits to raise standards of safeguarding and wind-down planning;
- closely supervise bank branch closures, working with the Government and industry to maintain access to cash and with the Government as it develops legislation.
Another outcome they want to achieve is for smaller businesses to have access to a variety of payment services. At no point do they want the likes of retail firms to be made vulnerable.
- Delivering fair value in a digital age
Competition is highlighted once again through fair value. Consumer trust is also another important factor. Without it, retail firms cannot survive. The FCA will, therefore:
- implement pricing and automatic renewal remedies in January 2022;
- develop a digital markets strategy;
- investigate harmful business practices to establish the impact on consumers.
An example of what they aim to investigate is ‘sludge practices’, making it hard for consumers to cancel a product or service online. Retail firms should take note.
- The new Consumer Duty
Finally, the new Consumer Duty would set clearer and higher standards for firm culture and conduct to help ensure they put their customers’ interests at the centre of their business models. This includes communications to consumers, how they design their products and services, and how they provide fair value. They already considered responses when the consultation ended on 31st July, and now they will consult on any proposed rule changes by the end of 2021.
Will the duty require all firms to assess the effectiveness of all of their actions and interactions? And can they enable positive outcomes for consumers? In addition, it will ask firms what exact outcomes consumers should be able to expect from their products and services.
And how can we assist you?
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