Clock is ticking for firms to ensure off-sale products comply with consumer duty

In July 2024, the consumer duty will come into force for closed products or services.

Financial firms must have a plan for how they will demonstrate they are delivering good outcomes for customers with products that are no longer on sale, FCA boss Sheldon Mills has said (Dominic Lipinski/PA) (PA Archive)

Financial firms must have a plan for how they will demonstrate they are delivering good outcomes for customers who hold products that are no longer on sale, a boss at the City regulator has said.

Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority (FCA), was speaking at a KPMG event in London about the consumer duty, which requires firms to put customers at their heart of what they do.

The duty came into force in July last year for new and existing products or services. In July 2024, it will also come into force for closed products or services.

Mr Mills said the “clock is also ticking” for closed products.

He said: “Under the consumer duty, closed products are ones that were sold before July 31 2023, but have not been marketed or sold to new customers since.

We know you may not have every answer. But you need to have a plan for how you will produce one, and how your firm will evidence that it is delivering good outcomes for customers who hold closed products

Sheldon Mills, FCA

“We gave firms an extra year to get to grips with the complexity of older systems and the increased work involved.

“There may be gaps in the data you hold from legacy systems, for example.

“We know you may not have every answer. But you need to have a plan for how you will produce one, and how your firm will evidence that it is delivering good outcomes for customers who hold closed products.”

Under the consumer duty, firms are required to act in good faith towards customers, avoid causing foreseeable harm to customers and to enable and support customers to pursue their financial objectives. This requires firms to be proactive, rather than waiting for the FCA to intervene.

The regulator has published its findings of good and bad practice in a report.

It said it has seen some firms wait to see if it will intervene to address an issue – rather than tackling it themselves. It said this is likely to cause firms more complexity in the long run, especially if consumer redress becomes due.

The FCA has also seen some firms relying solely on an assessment of similar product offerings in a market, although this alone does not prove that the customer is getting a good deal.

However, the regulator has also seen some firms have been offering fairer value, by increasing value received by savers, reducing fees, and maximising benefits to customers.

Mr Mills continued: “We will not judge firms with the benefit of hindsight.

“We don’t necessarily expect firms to re-price products or to repeat underwriting in every case if conditions such as life expectancy or economic conditions have changed.

“However, if a firm could have reasonably known that its assumptions were significantly wrong at the time a product was sold, we will consider if the firm complied with rules that were in place at the time.”

Mr Mills said that, by now, firms should have a “clear roadmap to comply with the duty by the deadline for closed products which is July 31 2024”.

Firms should have reflected on lessons learned in the run-up to the first deadline, filled in the gaps on open products, and have made sure closed products will comply by the deadline, he said.

Mr Mills added: “We expect sectors that will be impacted more by the closed products and services deadline to include life insurance, funeral plans, consumer investments, consumer finance and retail banking.”

He added: “If firms are experiencing problems, we would like to hear from them sooner rather than later so we can tackle this together.”