He also noted that the risks and complexities of the product or service need to be considered.
“The simpler and less risky a product or service is, the wider the target market is likely to be,” Wilson said.
This means that for some products or services the target market will be “very, very broad”.
“For a more risky or complex product, it might only be appropriate for a much narrower group, a group who can understand the risks and the complex features of that product and really make use of and benefit from that product and all its features,” Wilson explained.
Firms will be expected to monitor outcomes for the customers under the consumer duty so if a firm identifies an issue affecting a group of customers in a target market they may want to change their distribution strategy.
Dealing with vulnerable customers
Under this outcome of the consumer duty, firms will not be expected to review individual consumers or track their potential vulnerability.
Wilson explained this is because customers may move in and out of vulnerable circumstances at any stage and therefore the target market for a product or service is always likely to include some vulnerable customers.
“Instead, what we really want is for firms to consider whether their product or service has features that could risk harm for any group of customers,” Wilson said.
If it does, the regulator wants firms to take steps to mitigate those risks.
The consumer duty will also mean that firms will be expected to test their products and services in order to avoid foreseeable harm and to avoid adversely affecting groups of customers.
What's appropriate will vary depending on the product or service, according to Wilson.
“In all cases though, it's likely to mean thinking through things such as, how the needs and situations of consumers in the target market are likely to change.
“For some products it can be quite complex, quantitative testing for instance, looking at how investments might perform in different economic scenarios.
“So, it's going to be different in different situations,” Wilson said.
Manufacturing firms will be expected to have reviewed any product or service already on the market and will continue to be sold after July 2023 by the end of April this year.
This milestone is in place to allow firms to make any necessary changes before the rules come into force in July.
Firms will need to review their products and services regularly, but the FCA has not been prescriptive in how often this needs to be done.
Wilson said this is because it recognises that there is a whole range of different scenarios out there and when deciding the appropriate time for a review firms need to consider: “the nature and complexity of the product and service, the nature of the customer base, any indication of customer harm.”
