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On May 16, 2024, the Financial Conduct Authority (FCA) published the “Dear CEO” letter on implementing the Consumer Duty for closed products and services by July 31, 2024.
The bigger picture
The Consumer Duty was introduced by the Consumer Duty Instrument 2022 (FCA2022/31). Its aim was to set higher level and more transparent standards of consumer protection across financial services, including payments, in the UK, with an approach based on achieving good outcomes for consumers.
The instrument set out the following implementation deadlines:
- July 31, 2023: the rules entered into force for new and existing products or services that were open to sale or renewal.
- July 31, 2024: the rules implementation deadline for closed products or services.
A closed product is defined by two cumulative criteria:
- Existing contracts: where existing contracts with retail customers were entered into before July 31, 2023.
- No marketing and distribution: the product must not be marketed or distributed to retail customers on or after July 31, 2023. This includes not being renewed for existing customers.
The FCA’s “Dear CEO” letter is addressed to firms in view of the approaching July 31, 2024 deadline and sets out:
- Application of the Consumer Duty to closed products and services.
- Priority issues that are particularly crucial or widespread in closed products and services.
- Action prompts to ensure firms are prepared for the July 31, 2024 deadline for closed products and services.
- A reminder of the definition of closed products and services and an overview of the rules (Annex 1).
For a closer look at the Consumer Duty, please refer to Vixio’s Regulatory Analysis available here.
Why should you care?
When the Consumer Duty comes into force for closed products and services firms, the FCA expects payment firms to be able to show it that they are acting to deliver good customer outcomes.
The FCA also expects firms’ senior management to carefully consider the contents of the letter and take steps to ensure their firm is compliant with the Consumer Duty by the deadline.
The FCA announced that any action it takes with regard to non-compliance will be proportionate to the harm (or risk thereof) to consumers and it will prioritise the most serious breaches “acting swiftly and assertively”.
Priority areas that firms should consider include:
- Gaps in customer data: firms are required to assess, test, understand and keep evidence of the outcomes their customers are receiving.
- Firms must assess and be able to demonstrate that they are providing fair value to customers in closed products and services.
- Firms should already be meeting the expectations set out in the FCA’s Guidance on the fair treatment of vulnerable customers (FG21/1) in relation to the treatment of consumers with characteristics of vulnerability.
- Firms should identify gone-away or disengaged customers and take appropriate steps to support and communicate with them.
- Firms are not expected to give up any vested contractual rights; however, they are not prevented from doing so.
