The Financial Conduct Authority has provided more clarity on what it expects from firms when dealing with the products and services outcome of the consumer duty.
As part of the consumer duty the FCA said it wants all products and services for consumers to be fit for purpose and designed to “meet the needs, characteristics and objectives of a target group of customers and distributed appropriately".
Speaking on the Inside FCA podcast, manager of consumer policy outcomes at the regulator, Richard Wilson outlined what the FCA means by this.
“Simply put, we want to see products and services designed to meet the needs of a clearly defined target market and then we want firms to monitor and see what happens in practice,” Wilson said.
He outlined that firms will be expected to ensure products and services work as expected and ensure they are only being sold to the right people - the people in the clearly defined target market.
“If firms do this, so they put in place good governance and oversight of their products and services, and then they act on what they see in any problems then this will be a big step towards our overall objective of delivering good consumer outcomes,” Wilson said.
Wilson explained this obligation of the consumer duty will work in tandem with existing product governance in sectors like investments, insurance and funeral plans but will go a step further to cover all products and services, no matter how long ago they were launched.
The consumer duty will apply across all financial sectors where there is a retail customer while the rules covering products and services will apply equally to both.
“That's one of the things that we’re really keen to achieve with the new consumer duty, because I think in the past there has perhaps been thinking that these kinds of governance and oversight only really apply to products,” Wilson said.
He continued: “Whereas, actually we want it to apply to services as well. That can obviously include things like advice services, payment services, but also kind of just the ordinary sort of distribution services that firms are doing.”
Wilson gave the example of how a distributor firm will often be a manufacturer of their own distribution service as well as a distributor of a product that they are selling.
For these sort of firms they will need to think about the target market for their advice or the broking that they are offering.
Identifying your target market
When it comes to identifying a firm’s target market the consumer duty rules require that it is done at a “sufficiently granular level”.
“As a rule of thumb, I would say the target market should be defined in enough detail to avoid including any groups of customers who would suffer harm from that product or service,” Wilson said.
He added: “So, what we don't want to see is vague or very broadly defined target markets that might include groups who actually wouldn't benefit from the product or service.”
