Almost six months on from the introduction of consumer duty, the FCA has warned firms against viewing annual board reports as a tick box exercise and said the regulations for closed book products are just as important.
The regulator updated firms on the next steps of the consumer duty in a webinar on Wednesday (December 6).
Now, attention is turning to the next stage of the regulation which will see the duty applied to closed products and services from July 31, 2024.
Nish Arora, the FCA’s director of cross cutting policy and strategy, said: “Of course, there are some differences with closed products as they're not on sale to new customers - you don't need to identify your target market and you don't need to develop a distribution strategy but that doesn't mean the duty is any less important for closed products.
“It applies fully, and you still need to do a thorough and ongoing assessment to ensure your closed products deliver the right outcomes and meet the requirements of duty.
“For example, we don’t expect firms to consider the target market and distribution strategy for products that are no longer on sale. We will, however, still expect you to consider if closed products and services could lead to foreseeable harm or frustrate customers pursuing their financial objectives.”
Arora went on to say that, companies should be turning their attention to annual board reports setting out whether firms are delivering good outcomes for customers in line with consumer duty.
This report should be reviewed and approved at least once a year by the board or equivalent governing body.
Arora said: “This isn't an attestation to us, it's a piece of internal governance and it's a really important one.
“Boards have a really critical role to play in setting the strategy and assuring that your organisation is delivering the duty and the right consumer outcomes as part of that strategy.
“Like everything else about the duty the board reports are not a tick box.
The director said that firms should expect the FCA to ask to see their board reports to make sure they are “working effectively and that firms are taking a data led approach”.
Arora added: “We will be reviewing a sample of firms’ reports and looking at the data that includes, evidence consumer outcomes, how effectively the board has scrutinised the firm's performance, and what actions are planned to address any gaps.
“We are going to feedback from what we see and that will help to drive good practice across the industry more widely.”
tara.o'connor@ft.com
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