The Consumer Duty and Aviva

Individual responsibility for personal finances is greater than ever, but public trust in the personal finance industry remains weak. This is a bad combination. The Consumer Duty addresses this by raising the regulatory expectations of all who service retail customers.

The FCA published its final Consumer Duty rules on 27 July 2022. The consumer Duty builds on previous regulations, but goes further. The Consumer Duty demands that all who operate in this market evidence that they are “acting to deliver good outcomes for retail customers”. 

The scope of the Consumer Duty is wide. It applies to all firms who have a material influence over retail customer outcomes. For example, it applies to firms involved in the design, build or operation of retail products or services; firms involved in their distribution; firms involved in their communication; and firms involved in their servicing. In the platform market, the Consumer Duty applies to all firms - throughout the distribution chain - who have a material influence over retail customer outcomes - from the financial adviser, to the platform provider, to the fund manager.

The FCA has set four Consumer Duty deadlines:

• 31 October 2022: Implementation plans towards full compliance must have been agreed
• 30 April 2023: Manufacturers must have completed product reviews against the rules
• 31 July 2023: The rules apply to all open products and services 
• 31 July 2024: The rules apply to all closed products and services

This is the big question. There is no “one-size-fits-all” answer. Each firm must consider how it can evidence it is acting to deliver good outcomes. And four outcomes must be scrutinised:

• Products & services: to evidence that the design of all products and services continue to meet the needs, characteristics and objectives of their target market
• Price & value: to evidence that that all products and services give fair value
• Consumer understanding: to evidence that all communications are understandable and understood.
• Consumer support: to evidence that all customers can realise the benefits of their product or service.

Why has the FCA introduced the Consumer Duty?

Hi. I’m Alistair McQueen at Aviva.

In this short video I will look at why the FCA has decided now is the time for the Consumer Duty.

The Consumer Duty is significant. It arguably represents the biggest single page turn in our industry’s regulatory rulebook since “treating customers fairly” was first introduced more than a decade ago.

The FCA is not driving change just for fun. It is driving change to drive better outcomes for those we serve.

The FCA observes that individual responsibility for financial wellbeing in the UK is greater than ever. But it also observes a public that continues to carry low trust in financial services. This is a bad mix.

To its credit, the FCA also observes that it too has a need to move with greater pace and proactivity.

To paraphrase, for the FCA to keep doing the same thing, but hope for better outcomes could be a definition of insanity. The FCA is choosing not to keep doing the same thing.

At Aviva, we welcome this ambition for change.

The final definition of the Consumer Duty was born on 27 July 2022. On this day, after many months of industry consultation, the final 280 pages of detailed comment and guidance was published by the FCA.

I won’t attempt to cover all 280 pages here, but let me highlight three key points.

First, in terms of regulatory priority, the FCA are challenging all of us to give our customers’ interests the same priority that we give our commercial ambitions. In short, service and sales must be on an equal footing, on the shop floor and in the board room.

Second, in terms of regulatory approach, the FCA are not seeking to judge us against our ability to tick a long list of regulatory boxes. Instead, they are seeking to judge us against the outcomes we deliver for our customers. Outcomes, not actions, are what really matter to our customers. And it’s these outcomes that will really matter to the FCA.

And third, in terms of regulatory attitude, I’d argue that the FCA – acting as our regulatory judge – will shift its approach from treating us as “innocent until proven guilty”, towards a position of judging us as “guilty until proven innocent”. Under the Consumer Duty it will no longer be good enough to claim that we are acting to deliver good outcomes. We must evidence that we are acting to deliver good outcomes. 

In summary, the Consumer Duty significantly shifts the balance, style and attitude of our industry regulation. And it is believed that this shift will drive better outcomes for consumers.