FCA Consumer Duty – Research and Due Diligence

The FCA is consulting on ‘A New Consumer Duty’ and this is receiving considerable press coverage. The consensus of opinion is that this will bring significant change, and there is no doubt that larger firms in particular, will need to review and update systems.

With regards to smaller firms however, our view is that much of this has been seen before. If you look here https://www.fca.org.uk/multimedia/new-consumer-duty the straplines, like ‘always putting good consumer outcomes at the centre of the business’ and ‘focussing on the diverse needs of their customers at every stage’ have appeared in different guises over the years. We believe that firms who currently have good quality compliance and T&C governance in place, will be well placed to adapt to any new requirements.

Clearly, we await the issue of the Policy Statement in July 2022, but there is no need to hit the panic button just yet, unless of course, you are concerned about your current infrastructure (in which case we know a good compliance consultancy). Please note however that the FCA will almost certainly undertake reviews and surveys post implementation to gauge standards.

For reference, the relevant consultation papers can be found here https://www.fca.org.uk/publication/consultation/cp21-13.pdf

https://www.fca.org.uk/publication/consultation/cp21-36.pdf

We will be monitoring developments and will be issuing a series of articles that highlight some of the key aspects of the new consumer duty, even if these are a reminder (as below) of current expectations.

Research and Due Diligence

The principal purpose of the FCA’s new Consumer Duty is to help stop harm before it happens, with its aim to ensure that consumers are sold products and services that offer the benefits they might expect. As such, research and due diligence come into focus. In fairness, a rigorous approach to both disciplines, at outset and regularly thereafter, has always been a requirement, and this has been further emphasised by the Product Governance (PROD) requirements.

Non-exhaustive PROD requirements include:

  • Identifying the target market;
  • Researching the market and narrowing down the field of products and services to meet the needs to the identified target market;
  • Carrying out due diligence on the products and services to check appropriateness.

It’s quite important to understand how the FCA differentiates between research and due diligence.

  • Research is conducted on the market to identify solutions
  • Detailed due diligence is conducted on the recommended solutions.

(Ref: TR14/5: Supervising retail investment advice: Delivering independent advice https://www.fca.org.uk/publication/thematic-reviews/tr14-05.pdf )

Due diligence should include consideration of the risks the FCA has identified regarding the nature and benefits of an investment.

(Ref: TR16/1: Assessing suitability: Research and de diligence of products and services https://www.fca.org.uk/publication/thematic-reviews/tr16-01.pdf )

Research and due diligence should be the central function of any advice process.  This must be supported by a culture of challenge ensuring the best outcomes for consumers with suitability remaining the underlying theme. Providers, platforms, DFMs, panels, centralised propositions etc, need to undergo due diligence periodically, in line with this.

Firms need to have a robust systems and controls structure to be effective and we would suggest utilising online tools available, some of which can be accessed for free.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Research and due diligence are not new. Firms need to ensure they give equal prominence to both and understand the difference.

Action Required By You

Firms should ensure that its research and due diligence processes are robust and up to date. Talk to your ATEB Consultant.
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About the Author

Lisa has a wide range of skills and knowledge, and a track record of implementing compliance and T&C systems and processes of the highest calibre, covering all aspects of financial services.

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