Consumer Duty – information for firms

When the Duty comes into force 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. In some cases, firms can expect us to take robust action, such as interventions or investigations, along with possible disciplinary sanctions.

We understand that some firms will need to continually improve the way they use data and analytics to demonstrate compliance and we will be pragmatic and open in working with them on this.

A key part of the Duty is that firms assess, test, understand and evidence the outcomes their customers are receiving. Without this, it will be impossible for firms to know that they are meeting the requirements set out in the Consumer Duty.

The type of information firms will use will vary depending on factors like:

• size 
• client base 
• types of products and services that they offer 

Firms will need to use their judgement to identify data sources as evidence against the outcomes of the Duty. Chapter 11 of our Finalised Guidance gives examples of the types of data firms could collect.

 Monitoring outcomes is only required after the implementation deadline. But we recommend that firms start monitoring sooner to check they’re ready in time.

During the implementation period we will monitor firms’ readiness and feed back insights to the market. 

We want firms’ Boards and senior management to make good outcomes for consumers central to their firm’s culture, strategy and business objectives.

In FG22/5, we said that we expect firms to have a champion at Board (or equivalent governing body) level. We said that this champion should be an Independent Non-Executive Director (NED), where possible. For larger organisations with group structures, we expect this champion to be at an appropriate Board level so that the Duty is discussed in a meaningful way. 

The primary role of the Board champion is to support the Chair and CEO in raising the Duty regularly in all relevant discussions, and challenging the firm’s governing body/management on how it is embedding the Duty and focusing on consumer outcomes. 

This is not a ‘prescribed responsibility’ under the Senior Managers & Certification Regime (SM&CR). Firms can set it up in a way that fits with existing roles and responsibilities on their Boards. 

Generally, the Board champion should work with the Chair, but this will depend on the firm and its Board. In some cases, it may work for the Chair to be the Board champion for the Duty. Firms should apply their judgement and set up the role in a way that works for their organisation. 

This does not affect the Board’s collective responsibility under the Duty or their roles in complying with the Duty under existing governance procedures. 

In FG22/5, we have included examples of the types of questions the Board champion, or other members of firms’ governing bodies, could ask to make sure the firm is meeting expectations under the Duty. These questions illustrate the outcome focus of the Duty and are the sorts of questions we will ask firms. 

The Duty comes into effect on: 

• 31 July 2023 - for new and existing products or services that are open for sale or renewal 
• 31 July 2024 - for closed products or services  

‘Closed products’ are no longer marketed or distributed to retail customers nor open to renewal.  

If existing customers can continue to make payments under the existing product terms, this would still be considered ‘closed’ if the product or service is not open to new customers. For example, a pension product that is no longer sold to new customers, but where existing policyholders can continue to pay in contributions, would be considered closed. 

It is up to firms to consider each product and determine whether it is closed. 

The Consumer Duty does not apply retrospectively. Both we and the Financial Ombudsman Service work on the basis that conduct should be judged on the rules and standards in place at that time. 

We have been working closely with the Financial Ombudsman to make sure our interpretations are consistent, while recognising the different roles that we both play.

The Duty applies in a reasonable way. The focus on good customer outcomes applies to all aspects of firms’ operations and culture. All firms have a Duty to act to deliver good outcomes for their customers. What this means in practice will depend on key factors, including:

• The nature of the product or service. More complicated products are likely to need more attention than simpler or less risky products. 
• The characteristics of a firm’s customers. Where customers are more likely to have characteristics of vulnerability, for example, we would expect it to take additional care. 
• The firm’s relationship with its customers. Obligations under the Duty reflect the firm’s role and ability to influence retail customer outcomes. We would expect firms to focus on harms that are reasonably foreseeable. 
• The size of the firm. We do not expect a small firm to apply the same resources or processes as a large firm. 

We set out more on how the Duty applies reasonably in Chapter 4 of FG22/5.

If your firm is in scope of the Consumer Duty, your application must prove that you can comply with the Consumer Duty. We expect your application to be tailored to your firm and expressly set out how your firm will act to consistently deliver good outcomes to retail customers. 

To help us assess whether you can comply with the Consumer Duty you should provide all the policies, processes, Management Information (MI) and any other materials you have created or rely on to support your firm’s compliance with the Consumer Duty. These should include the following. This is not an exhaustive list and you may be asked to review and amend any documents you submit or create new documents should they deemed to be missing: 

• target market analysis and identification 
• a product and service governance framework 
• a fair value assessment framework 
• customer understanding assessment & testing framework 
• customer support monitoring polices and supporting Management Information (MI) suite 
• customer outcome monitoring framework 
• root cause identification process

The Duty applies to all firms with a key role in delivering retail customer outcomes, including those with no direct customer relationship. For example, it applies to firms that can determine or influence:

• the design or operation of retail products or services, including their price and value
• communications with retail customers
• customer support for retail customers 

Where this applies, a firm’s responsibilities under the Duty will depend on the firm’s role and level of influence. 

See Chapter 2 of our Finalised Guidance for how the Duty applies across the distribution chain.

Manufacturers and distributors need to work together and share information, in order to perform their own roles effectively and deliver good outcomes.

Distributors should have a clear understanding of the target market and the way products operate. We expect distributors to get the information they need from manufacturers, and manufacturers to be monitoring that their products are delivering good consumer outcomes. 

6.68 of FG22/5 includes examples of the type of information we would expect to be shared, where appropriate. 

In general, we do not expect distributors to share information without being asked. We expect the manufacturer to consider what information would be helpful and to take reasonable steps to gather it. For example, through focus groups or sending surveys to distributors.

Unless there are regulatory or contractual requirements, firms are only responsible for their own activities and do not need to oversee the actions of other firms in the distribution chain.

If a firm identifies consumer harm elsewhere in the chain it must raise the concerns with other relevant parties. This could include situations where a distributor identifies foreseeable harm or problems with the way a product or service is operating in practice.

Firms must also notify us where they become aware that another firm in the distribution chain may not be complying with the Duty. This expectation is in line with the existing Principle 11 requirement to inform us of anything relating to the firm which we reasonably expect notice of.

Only firms conducting regulated activities in the UK are within our regulatory remit and subject to the Duty.

Where the distribution chain involves firms in Gibraltar selling products or services to UK retail customers, the Duty still applies. It applies to those firms whether they have an establishment in the UK or operate on a cross-border basis.

We recognise that risks remain for UK retail customers if the distribution chain involves other parties outside the UK that are not subject to equivalent requirements. To help manage this risk, UK distributors of non-UK products and services must take all reasonable steps to understand the product or service, the target market it would serve and the value it provides so that it will be distributed appropriately. 

Regulated firms should also consider whether including a firm that is not subject to the Duty in the distribution chain leads to a risk of poor customer outcomes. 

There is more information on application outside of the UK in Chapter 2 of our FG22/5.

For firms dealing with non-UK customers, the Duty applies in line with the existing regulatory perimeter. Where current rules apply to a UK firm dealing with non-UK customers, the Duty will also apply.

Where the chain includes firms outside the UK, which are not subject to the Duty, we recognise that UK firms may not be able to meet elements of the Duty to the same degree. A UK product manufacturer may find it difficult to obtain information from non-UK distributors about their distribution of the product. 

In this case, UK firms should consider what is reasonable in the circumstances. For example, they could use any information that they do have available to support their work. We would not expect UK firms to obtain information from firms that are not subject to the Duty.

We have made some changes in the March 2023 Handbook Notice to make certain points clearer in the rules: 

• The application to firms approving or communicating financial promotions
• The application to firms in the temporary marketing permissions regime (TMPR)
• The ‘closed product’ and ‘existing product’ definitions
• The application to credit unions

This follows on from our consultation in December 2022 and the changes are consistent with our position in Consultation Paper CP21/36. 

We are still considering responses to the December consultation in relation to the amendments we had proposed on:

• Defined benefit occupational pension schemes  
• Non-retail financial instruments
• Exemptions in sectoral Sourcebooks  

If we take any of these proposals forward, we will grant an appropriate implementation period for any changes we make to the rules.

Under the Consumer Understanding outcome, we expect consumers to be given the information they need, at the right time, and presented in a way they can understand. 

Data protection laws (the UK GDPR and Data Protection Act 2018) and the Privacy and Electronic Communications Regulations 2003 (PECR) don't stop firms from telling customers about better deals or providing information that they need to know as part of their relationship with that firm.

Administrative or customer service messages aren't considered to be direct marketing, so there are no restrictions on communicating this type of information. Firms can also provide regulatory communications to all customers that provide neutral, factual information. For example, information about the product they hold, terms of other available products, and what their options are for moving to another product.

The Information Commissioner's Office (ICO) guidance on direct marketing and regulatory communications explains how to draft regulatory communications, and includes illustrative examples.