The four consumer outcomes
1. Products and services
The rules and guidance under the products and services outcome is aimed at ensuring that products are designed to meet the needs, characteristics and objectives of a target group of customers and are distributed appropriately. The FCA has introduced new product governance rules that apply across all sectors. The requirements will, however, not apply where products are subject to existing product governance rules in PROD 3 (MiFID), PROD 4 (IDD and pathway investments) or PROD 7 (funeral plans).
2. Price and value
The FCA wants all consumers to receive fair value. This is not just about price, but ensuring that there is a reasonable relationship between the price paid for a product or service and the overall benefit a consumer receives from it.
The Consumer Duty does not require firms to charge all customers the same amount – differential pricing between new and existing customers is not prohibited - provided that upfront discounts are clear, transparent and the firm can justify that both groups are receiving fair value. The FCA also confirmed that the rules are not intended to prevent cross subsidies between products or require firms to move onto cost plus pricing.
Manufacturers will be required to carry out a value assessment of their products and review that assessment regularly. They must consider the fair value assessment at every stage of the product approval process; in particular, when designing the product, identifying the target market and selecting distribution channels. The rules and guidance set out, at minimum, what manufacturers must consider as part of their value assessment. This includes considering: the benefits that will be provided (or reasonably be expected to provide); any limitations of the product; expected total price to be paid; and the impact that any characteristics of vulnerability in the target market may have on fair value.
Manufacturers will also need to share all necessary information with distributors to enable them to understand the value that the product is intended to provide to a retail customer. However, the rules do not require firms to provide sensitive or confidential information, e.g. breakdown of profit margins or risk-based pricing. Information shared can be a high-level summary of the benefits to the target market; information on overall prices or fees; and confirmation that the manufacturer considers that total benefits are proportionate to the total costs.
Distributors also have obligations under the price and value outcome. For example, they are responsible for ensuring the fair value obligations in relation to distribution are met in respect of any product it distributes to a retail customer. Distributors will be required to consider the fair value assessment when determining the distribution strategy for the product and, in particular, where the product is to be distributed with another product (whether as part of a package or not).
3. Consumer understanding
The consumer understanding outcome is designed to ensure that firms support and enable consumers to make informed decisions about financial products and services. Firms will be required to provide information consumers need, at the right time, and presented in a way they can understand.
Firms will be required to test their communications to assess how they are understood. Testing can take different forms and the FCA has set out different approaches that firms can take in FG22/5. The FCA has clarified that firms should continue to comply with existing disclosure requirements (e.g. disclosures prescribed under the Consumer Credit Act 1974), but will need to think more widely about the purpose of their communications and the outcomes they are focused on, to meet the FCA’s expectations under the Duty. Where a firm has to communicate complex information, it should consider what additional steps it can take to support consumer understanding. The FCA has suggested that a layered approach can be helpful in providing context or explaining key information upfront in a simple way.
The FCA also clarified that if a firm is not authorised to provide advice, it should equip its customers with information to make effective decisions in a way that does not amount to advice.
4. Consumer support
The consumer support outcome requires firms to provide a level of support that meets consumers’ needs throughout their relationship with a firm. Firms will be required to: design and deliver support to retail customers in a way that meets the needs of all retail customers (including those with characteristics of vulnerability); ensure that retail customers can use their product as reasonably anticipated; ensure that they include appropriate information in customer journeys to mitigate the risk of harm; and ensure that retail customers do not face unreasonable barriers during the lifecycle of the product, e.g. to switch or transfer a product, to access a benefit, to make a complaint or cancel a contract.
Firms that provide a digital only support offering to meet the needs of a specific tech savvy target market, firms are not expected to offer an additional non digital full service channel to meet the needs of customers outside of this target market. However, the FCA clarified that such firms will still need to ensure that they deliver good outcomes and will be expected to have an exceptions process to deal effectively with non-standard issues, e.g. security or fraud concerns or those involving complex or sensitive matters. The FCA considers that it is likely that such firms will need a real time human interface, such as a phone service, to deal with some of these issues and provide effective support to customers.
