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Regulatory Round Up: August 2024
Following earlier work on the consumer duty in the insurance industry, the FCA published a report on 21 August on issues around information sharing between insurers and brokers.
The thematic review assessed product oversight and governance arrangements against PROD 4 and found that manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes, with a particular problem in identifying whether products are not delivering fair value.
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Key issues for manufacturers include:
Not having a process for the governing body to have ultimate responsibility for the products and their overall performance, including fair value. Responsibility and accountability were disparate, over several committees and different elements of the product or performance with no holistic oversight.
A lack of evidence of monitoring, including records to evidence that product approvals were approved by the governing body. The FCA highlighted a lack of evidence of challenge as being an issue here.
Use of committees with no decision-making powers, with a separate individual actually undertaking the product approval.
Senior management with limited input of the approval process, which was not embedded in all business units.
Better practice examples include:
A clear framework, supported by a product approval process aligned to manufacturers’ responsibilities under PROD 4.2.
Good evidence that products offer fair value and achieve fair outcomes including, product review and product approval output that is easily digestible and clearly identified if and how the product offered fair value, along with data and evidence. Any concerns were included, along with proposed actions. Summaries were clear, enabling decision makers to have well rounded discussions.
Clear responsibilities for actions needed to address problems, with examples of appropriate action taken to show that senior management took prompt and appropriate decisions when a product needed to be amended or withdrawn, allocated responsibilities, and made and evidenced decisions supported by appropriate evidence.
Good monitoring systems, including customer satisfaction, call-monitoring and file reviews, and reviewing claims metrics to ensure the product was meeting customer needs.
Giving distributors a sufficiently detailed and granular target market statement so they can understand the groups of customers the product would and would not provide the intended value to. Providing distributors with all appropriate information on the product.
Main issues for distributors include that they do not fully understand their responsibilities to consider their remuneration, its interactions with the services and benefits they provide and its impact on the product’s value.
Key issues include:
Product distribution arrangements were too high level and did not have enough detail in key areas, including strategy, remuneration and information sharing with manufacturers. The FCA here suggests that a single page document is far too short.
It was often unclear who was responsible for product distribution arrangement decisions and how oversight worked.
A lack of usable MI to assess the impact of their own activities on the product’s value.
Insufficient evidence of their own decision making.
A lack of adequate processes to enable the firm to assess and understand the impact of the distribution arrangements on the product’s value.
A lack of understanding and processes in place to trigger a fair value review.
New ICO tool helps businesses create privacy notices
The new tool helps smaller businesses to create tailored privacy notices that comply with data protection law. Privacy notices are required to tell individuals what data the organisation needs and what it does with it. Two different types are offered; one for customer and supplier information and another for staff and volunteer information.
The ICO is also encouraging smaller businesses to use the tool to check that existing privacy notices are up to date.
FCA fines PwC for failing to alert the FCA to suspected fraud
A 2016 audit of London Capital & Finance plc led PwC to suspect that LCF might be involved in fraudulent activity. PwC should have reported this to the FCA but did not. The audit was complex, but PwC eventually satisfied itself that the 2016 accounts were accurate; the FCA says that regardless, it still had an obligation to report its previous concerns to the FCA.
LCF went into administration in January 2019 following an order to withdraw misleading promotional material for the sale of mini-bonds, and the Serious Fraud Office has since opened a criminal investigation into the failure of LCF.
PwC were fined £15m.
FCA reports on the first year of the consumer duty
Their 31 July 2024 webinar reflects on the impact of the duty. Sheldon Mills, executive director of consumers and competition, said that there have been many examples of positive and impactful changes, citing the speed that cash savings products increased interest rates following base rate increases and other, individual firm-led changes, including simplification of charging structures leading to greater transparency and comparability. He also highlights changing employee bonus structures to ensure that employees get good outcomes when their customers do. Overall, he is satisfied that the Duty is making a tangible difference for consumers.
Abby Thomas, Chief Ombudsman at the FOS, highlighted how they have made changes to support the implementation of the consumer duty and how they plan to share insight that complaints data will be able to provide on how successful the Duty has been in resolving issues before they get to complaint stage. She said that, at this stage, they’ve continued to see complaints where customers have said a firm hasn’t considered or met their individual needs and suggests that taking the time to listen to a customer’s concerns can lead to a better picture of the impact for that customer and lead to a resolution.
Overall, the theme seemed to be that the Consumer Duty has started the industry on the road to fairer outcomes, but that there is still work to be done.
Incentives and remuneration are repeatedly mentioned in FCA publications this month. With a potential focus on strategy and process in this area, firms should review the FCA’s expectations through a Consumer Duty lens to ensure that remuneration structures are reasonable and are designed to ensure fair treatment of customers, rather than, for example, encouraging staff to overlook good outcomes in favour of sales.
We have a range of courses designed to explain how fair treatment works in the real world. Giving learners a concise and effective view of good practice, our short courses introduce new staff to regulatory requirements, key legislation and process, and offer excellent refresher training with plenty of practical and interactive sessions for established staff. Our Fair Treatment of Vulnerable Customers and Consumer Duty courses are priced at £20, are accessible at the user’s convenience and provide a certificate upon successful completion.
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