Consumer Duty

We’ve banged on about this at length throughout the past year – see our past Newsletters of early and late September.

July 2023 will see these rules go live for existing products and services. Firms with an extensive retail footprint will need all of that time to put new information flows and Board reporting in place.

Fulcrum Compliance will continue to work with in-scope clients (which includes those without retail permission but who do have a role in the retail distribution chain) to ensure that they have a good story to tell.

Vulnerability

One area that FCA will be focussing on in 2023 is vulnerability. When this concept was first aired it tended to centre around those retail clients who lacked the capacity to make their own decisions or understand the advice they were given.

Hence firms with elderly clients – or more particularly, those clients who were either in care or perhaps showing signs of dementia – would need to consider how they guard against these clients receiving bad advice or at worst, being exploited.

Since then, the concept of vulnerability has broadened to a much wider set of clients who might fairly be classed as vulnerable, albeit for different reasons. This includes clients who for whatever reason are struggling to make ends meet or pay bills. See FCA’s Guidance on this here.

Hence you will have seen banks and mortgage providers being asked by FCA to exercise forbearance with customers who have overdrafts or are in arrears.

FCA’s interest extends beyond these institutions to all retail-facing firms, who will need to explain how they identify vulnerability and what processes they put in place to protect clients.

This will include a mix of criteria (including age and known financial circumstances) and some softer identifiers (does the client seem themselves, are they behaving normally, is there any sign of financial strain).

Once identified, the suitability of a service or product for a vulnerable client will need to be given particular consideration. There may be no “one size” solution for such clients, but these could range from more detailed consideration of financial needs to (say) the re-calibration of a portfolio to very low risk.

Fulcrum Compliance will be working with client firms in 2023 to consider what additional steps need to be taken in this area.

The Playground Bully

Everyone will have read about the £80K fine levied on Sir Chris Gent. It’s sad how events such as these can sully the reputation of those who have otherwise made enormous contributions to the UK.

But there’s nothing FCA likes better that a well- known head on a spike, and it has a long pedigree in this area. See FSA’s 2011 £210K fine of Sir Ken Morrison – of supermarket fame – for similar offences.

But it’s a pity that when FCA goes toe to toe with institutions with deeper pockets who are prepared to fight that the outcome is different – you’ll have read in August of the conclusion of FCA’s investigation into the collapse of HBOS, resulting in no actions against any individual.

What sort of model of regulation is this? Is FCA happy to pick off an isolated individual who is not at the centre of the financial system, but shies away from taking on those of systemic importance? Does that sound like a playground bully?

On a separate (but related) note, FCA interim Chair Richard Lloyd warned the Treasury Select Committee on 7 November that the government’s proposed power to “direct a regulator to make, amend or revoke rules” amounted to government interference in regulation which could compromise FCA’s independence and unsettle markets.

This has since resulted in a government climbdown, the government announcing on 23 November that it would not proceed with these plans.

But given the lack of public confidence in the financial services sector and FCA’s inability to take on hard cases, perhaps some direct public / elected oversight is just what’s needed. If government had the power to “call in” FCA decisions, would the HBOS directors have walked away?

As Jim Armitage said of them in The Sunday Times on 28 August “They may not have signed the individual lending agreements. They may not have been on the building sites in the doomed property developments HBOS lent to.

But they were surely the architects of the overall plan. Yet, according
to the FCA, all of them remain fit and proper individuals to run financial services businesses.”

But the prospect of government overturning FCA disciplinary processes and investigations in the “public interest” is probably a step too far. So we will all have to suffer some bad regulatory outcomes for the foreseeable future.