This is the final adviser blog, in a series of three, explaining the purpose and impact of the upcoming Financial Conduct Authority (FCA) regulations on Consumer Duty.
This blog considers the third of the three Cross-Cutting Rules: “A firm must enable and support retail customers to pursue their financial objectives.”
For background details on Consumer Duty, please take a look at the opening section of our first blog on Consumer Duty.
Consumer Duty looks to three Cross-Cutting Rules. Let's look at the third Cross-Cutting Rule.
What is Cross-Cutting Rule number three?
The third Cross-Cutting Rule is that a firm must enable and support retail customers to pursue their financial objectives. This rule relates to the financial aims of the customer and applies across the entire customer journey, and the life cycle of the product or service.
Just like each of the principles which underpin Customer Duty, the rule does not dilute or remove your customer's responsibilities for their actions. However, for customers to be responsible, they need to be supported in making well informed decisions.
This means that firms should focus, proactively and reactively on enabling customers to be in the best position to make well considered decisions regarding their financial objectives.
This includes recognising and being mindful of the behavioural biases of your customers, and the effect that vulnerability can have on their choices.
Just like Cross-Cutting Rule number two (acting to avoid causing foreseeable harm), this rule is based on reasonableness. So, an assessment of the actions taken by a firm would be based on what is within the firm's control, based on their knowledge of the customer, and the conclusions they can draw about a customer's objectives.
A firm offering advisory or discretionary services would naturally have a good understanding of the customer's particular objectives and would be required to act on that information.
If a firm decides that they cannot provide a customer with a specific product or service, the firm should assess if there is information or support it could offer to help the customer fulfil their financial goals. So, for example, a firm could signpost a customer to a third party that provides reliable and relevant information to customers like theirs.
When is it important to consider this rule?
Firms need to enable and support customers to pursue their financial objectives at each stage in the customer journey.
How can firms support consumers in pursuing their financial objectives?
Firms can support customers by:
- Considering the traits and characteristics of their consumers and ensuring that their communications are developed accordingly, and likely to be understood.
- Helping customers understand and manage the information that they provide, ensuring that it is easy for customers to find the key information they need and their options.
- Monitoring the impact of various communications, assessing understanding and making relevant improvements to communications where needed.
How can firms meet this rule through consumer support?
Firms can support customers by:
- Delivering consumer support that does not have unreasonable barriers to consumers enjoying the benefits of products and services, or acting in their interests.
- Making sure that their customer support enables consumers to fully utilise the products and services they have bought and supports them in acting in their own interests.
What does this rule NOT expect of a firm?
The FCA are clear that this rule and the overall Consumer Duty do not require firms to go beyond what is reasonably expected by customers in service delivery:
- It does not require firms to undertake regulated activities beyond their scope of service.
- Firms do not need to go beyond what is required of a prudent business. For example, if a customer's financial objective is to switch to a cheaper product or service, then whilst the firm must not create unreasonable barriers to prevent or discourage the customer from switching, the Duty does not oblige the firm to provide the customer with a cheaper contract or inform the customer about cheaper options elsewhere.