Questions, questions…

As a result of firms needing to implement Consumer Duty this year (and many still don’t appear to have their act together yet), there hasn’t been much output from the regulator in the latter half of 2023. That has changed.

In recent weeks the FCA seems to have issued more paper than confetti at a society wedding! They did say that there would be more, and like when you’re waiting for a bus, there are none for ages then loads at once.

As if the 212 page monster – PS23/16 – Sustainability Disclosure Requirements (SDR) and investment labels wasn’t enough, this was rapidly followed by another Dear CEO letter and Consultation Paper – CP 23/24 – Capital deduction for redress: personal investment firms (we’ll comment on these once we can clearly see how they impact our readers), but lurking in the background is another multi-question follow up information request in relation to retirement income advice.

We commented on the first of these here – the questionnaire had been issued to 1300+ firms, but the latest one snuck under the radar a little and it pulls no punches. We’ve commented before that we think that the FCA is targeting firms that they haven’t engaged with previously and this view is becoming increasingly reinforced.

What is being requested this time?

The theme isn’t significantly different, but the areas being targeted are becoming much more focused. The FCA is asking for detail and explanations/commentary on the following list. There is a clear Consumer Duty underpin here and if firms haven’t looked at some of these areas they would be wise to do so. And soon.

  • Target market for the firm’s CIP/CRP
  • Scope of the firm’s retirement income advice
  • The firm’s adviser charging model and how this is communicated to the target market
  • The platforms selected for decumulation advice
  • The due diligence and oversight performed by the firm on its third party service providers
  • Firms should ensure the investments, including model portfolios, they use to deliver their CRP are appropriate, and are correctly aligned to customer risk profiles
  • Firms’ methodology for meeting retirement income needs and the range of solutions used
  • Firms’ process to assess customers’ attitude to risk (ATR) and capacity for loss (CFL) in decumulation. Firms should understand how the profiling process works, including any limitations, and have a robust process in place to mitigate any shortcomings
  • Firms should ensure that Cash Flow Management tools use appropriate assumptions to help deliver good outcomes for customers – Note: Don’t forget that special rules apply when using cashflow forecasting in DB advice scenarios.
  • Where a firm commits to an ongoing service, which may include a periodic review of the suitability of customer investments and retirement income strategy, those services should be matched to customer needs, delivered as promised, and executed well
  • Firms should have a training and competency scheme in place setting out a framework for appropriate assessment and supervision of advisers and showing how advisers achieve and maintain competency
  • Firms should have appropriate remuneration policies, procedures, and practices to promote effective risk management
  • Firms should have an appropriate framework (systems and controls) in place
  • Firms should ensure vulnerable customers that may have additional or differing needs and/or may be at greater risk of harm can be identified and provided with appropriate support
  • Firms should have a clear policy in place to manage any conflicts of interest

Many, if not all, of these above should already be in place of course, but there are also lots of supplementary statements below the headings informing firms of what the FCA expects to receive in their responses and these draw parallels to some of the information requests we’ve highlighted in other recent articles. Governance and the MI that firms use feature heavily here.

What next?

The findings from the thematic review were due to be published in Q4 2023, but it may be early 2024 before they finally land. Either way, we expect that these may not be pretty in many respects. As we’ve commented previously, some of the firms who received the original questionnaire have been asked to submit files for review and if these have flagged up issues, it may well be that the FCA decides that further action is required – they have promised to be more intrusive and proactive.

There will be lots of wailing and gnashing of teeth about this of course, with the usual indignant commentary about the manifold shortcomings of the regulator, some of which may be justified, but is there anyone out there who still thinks that Consumer Duty and good client outcomes aren’t a big deal?

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

Some firms have taken action, but others have effectively paid lip service to Consumer Duty and in reality have changed very little from what they’ve been doing for a long time. If your firm is well run, delivers good advice, provides the service it promises, can evidence that the people in the firm are competent and there is governance and MI that evidences all of these then you’re probably in a good place. Firms that can’t meet these expectations may have a problem. We aren’t trying to scaremonger here, there has been a tangible shift in the regulator’s tone and statements of intent recently. Yes, the headlines are still being grabbed by firms and individuals who delivered poor DB advice in the past, but all that money is now in DC and at some point clients will want to start accessing it. Poor decumulation advice could impact clients’ standards of living for the rest of their days, so if you get this wrong and get it wrong on a big scale you can imagine what the consequences may be. These questionnaires are just one of the tools that are being used to gather data on firms and their activities, so if your firm receives one can you provide all the answers? Despite the warnings many firms still bury their heads in the sand, or convince themselves that because they don’t have a litany of complaints that all is well, but when we’re dealing with the aftermath when things have gone awry, wisdom after the event is pretty useless and the cost can be huge. Section 166 and past business review are really not what you want to hear, but we think that they may become more commonplace in 2024. Good firms have little to fear, but those that don’t do it right may well find that the net is tightening.

Action Required By You

If you haven’t got your ducks in a line and wouldn’t be able to provide detailed comments about how your firm deals with all the areas highlighted in the latest questionnaire you may well need to do something. And quickly. If your firm needs help to get things in order, speak to us and we can help.
SUIT - Beautiful Reports
SUIT - Complete Control
SUIT - Comp confidence
previous arrow
next arrow

About the Author

Paul has in-depth experience across a wide spectrum, having headed up compliance, T&C, monitoring, oversight and MLRO functions previously. He was also an IFA for some time so can see things from more than one angle.

Contact Us

Brought to you by

Explore more articles in this category

Other articles that you might be interested in