It’s not the easiest thing to make a speech about financial services regulation even passably entertaining.
I say this as someone who used to have a copy of the Financial Services and Markets Act on her desk, with Post-its marking the good bits.
But kudos to the speech writers at the FCA who recently seem to have made a real effort to be engaging before they hit the industry between the eyes with their latest regulatory warnings.
And so we find Sheldon Mills in his latest speech musing about the invention of the Slinky, the development of the internet, and the construction of the Cabinet War Rooms, before pointing out that the 31 July deadline to comply with the Consumer Duty for closed book business is fast approaching. And it’s spotted some potential issues of concern.
Price, value and data
The FCA is keen to point out that it’s not a price regulator, but its strategic objective is to ensure that markets function well. And if firms aren’t offering fair value, in its view, that’s not a functioning market.
The regulator has rather pointedly commented that simply benchmarking yourself against the market isn’t the best way of showing that you’re offering fair value – what it wants to see is whether your clients actually get what they’re paying for.
The latest wave of research into how small firms are responding to the duty is now available, and if you’re a small adviser, for once, it makes (relatively) cheerful reading. Advisers are the sector most likely to have conducted a fair value assessment of their products and services, with 88% having done so (although the 3% who haven’t started or don’t think it applies to them might want to have a hard think about that).
That leads to a specific point about gaps in monitoring data. You need to be able to show your working when you carry out your price and value assessment. As one very large wealth management firm has found out, if you only have data since you last changed your IT systems, you’d better make sure you have processes in place to monitor if the clients you’ve had on board before then are getting good outcomes. And put things right if they aren’t.
If you think your firm is finding data and metrics the hardest part of Consumer Duty implementation, you’re not alone. It was the aspect of implementation that the biggest number of small firms in the survey (28%) found hard to implement.
Keeping the consumer connection
What the FCA is describing as ‘elusive customers’ is also the focus of attention.
In Sheldon Mills’ speech he acknowledged that some customers just don’t want to be contacted, or fail to engage, and there’s only so much you can do. A point which is particularly relevant for closed book business.
But in some cases firms aren’t doing enough. The key point is you’re expected to ‘test, monitor and adapt’ your communications strategy. It’s worth focusing in particular on the word ‘test’. Because if you can show that you’ve tested your communications to elusive customers, and they are generally successful, you’re in a much stronger position to justify your strategy for the ones that, despite everything, fail to engage.
Vested rights
And finally, what’s lurking in those closed book products, such as exit charges or fees? Not in themselves an issue, but if a fee is significant and could potentially undermine the whole point of the product, then now is the time to be thinking about how to remedy that. Which might involve switching to another product, or reconsidering fees.
The FCA is promising more communications as the closed book deadline approaches, so keep an eye open for that. Let’s hope the speech writers are already cracking their knuckles and firing up the metaphor generator for the next one.
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