I had an interesting conversation with a trustee the other day, in which I happened to mention the new FCA Consumer Duty coming into play from 31^st July. “Thank goodness that doesn’t apply to us” he said.   I was taken aback but also intrigued as to why such a negative reaction.

Firstly, the FCA Consumer Duty rules only apply to regulated firms and retail customers and they’re focused on making sure that products and services sold are suitable for the consumer and drive good financial outcomes. So far, so good. Regulated firms are expected to:

·        Deliver good outcomes for retail customers

·        Act in good faith

·        Avoid causing foreseeable harm

·        Enable and support retail customers to pursue their financial objectives

Isn’t this what trustees are expected to do? Isn’t this what we do every day?

I thought about it a bit more and asked myself a question - what is the difference between a retail customer and a pension scheme member? Well, a retail customer is someone who is not financially sophisticated, is not asset or income rich, and is not superannuated. Clear as mud, but we sort of get it. Consumer Duty applies to regulated firms who sell financial products to ordinary people.

My trustee friend is therefore quite correct; FCA Consumer Duty does not apply to his schemes, but the principles do.

FCA rules require regulated firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. This is a big deal. It is no longer enough to send an annual statement and hope it doesn’t go straight in the bin. Communications will need to be relevant and more tailored to actual circumstances, which means that banks and insurers will have to get to know their customers better. Data will be key for the future of regulated firms and the criticality of consumer-driven data might itself drive a change to GDPR and enable holistic financial management and protection from harm – something I long to see.

Observing bank and insurer responses to Consumer Duty is interesting and encouraging.  Attention is being paid at the highest levels. Apart from realising that many well-established products may not actually be delivering good outcomes for customers, they are being forced to make changes to avoid fines. They are required to evidence that their products and customer services achieve what they say on the tin. In other words, they have become accountable.   

As is usual with rule or regulatory changes, lots of heat and light goes into interpreting what is meant and working out how to demonstrate compliance and as usual, the good providers are already doing most of this without making a fuss . While the cost of adjusting to and evidencing the new consumer duty is unfortunate (and probably rather high), we should end up with better outcomes for ordinary people.

Coming back to my trustee friend, who is certainly off the hook for Consumer Duty, he is firmly on the hook for the key principles. On behalf of employers, he is delivering a benefit promised to ordinary people, who are generally not financially sophisticated or rich. He is duty bound to be fair, to act in good faith and offer value for members. We expect him to communicate appropriately and to make decisions that take account of the facts and ignore irrelevant matters.

It will be interesting to see how Consumer Duty plays out in protecting people from scams. The PSIG Code is fully consistent with Consumer Duty in warning about the dangers of scams, avoiding foreseeable harm, but also in understanding scheme members a bit better. Identifying warning signs and helping members to appreciate why we might ask them to think a bit more about some actions they wish to make puts members into a position to make informed decisions; it is doing our duty and is a clear indicator that we act in their interests and deliver good outcomes for our members.

The latest anti scam guidance from PSIG is coming out within days and should drive good practice, which itself will drive good outcomes. Consumer duty even if we don’t actually say it.