Consumer Duty View - July 2024

FCA Call for Input: Review of FCA requirements following the introduction of the Consumer Duty

1. What is it?

In light of the introduction of the Consumer Duty, the FCA has released a Call for Input in order to identify rules which could be removed or simplified if they overlap with the Duty. The aim of the FCA here seems to be to (i) reduce costs for firms, (ii) streamline the Rulebook and (iii) move to an outcomes-based approach. They are proposing greater reliance on the Consumer Duty in place of specific rules and guidance.

The FCA has asked for views on:

• which detailed rules or guidance could be simplified and replaced with high-level rules;
• how any steps to simplify their rules and guidance might affect their statutory objectives;
• the appropriate balance between high-level and more detailed rules;
• the potential benefits and costs from simplifying their rules; and
• the potential impact on consumers.

The FCA is particularly interested on the impact on different types of firms and wants to support flexibility and innovation with these changes.

However, it seems to us that the remit of this Call for Input is broader than it initially seems. The FCA has also asked if there are any areas of the FCA Handbook beyond those that overlap with the Duty where they should consider simplification or removal (see Q3 of the Call for Input).

2. Are there any examples of areas of the Handbook that could be impacted?

Yes. The FCA gives the following examples of potential changes:

• The provisions in DISP pertaining to firms taking appropriate action once consumer harm has been identified overlap with the Consumer Duty requirements in PRIN. The FCA suggests consolidating these into one set of rules.
• The FCA suggest removing the prescriptive disclosure rules in MCOB and relying on the Consumer Duty consumer understanding requirements instead, to give firms greater flexibility and deliver good outcomes.

3. Why are high-level rules better?

The FCA outlines the benefits of high-level rules being (i) flexibility to address complex drivers of harm, (ii) allowing innovation in the market and (iii) being more adaptable to change. However, it does accept that detailed rules can be needed particularly when the following factors are in play; (i) non-retail markets, (ii) where regulatory certainty is needed, (iii) where standardisation is required, and (iv) where there are international considerations/standards. An example given is product governance – removal of the sector-specific PROD requirements may create further uncertainty. The FCA also suggests that a hybrid approach could be appropriate in some areas, like retirement planning, for example, which is an area with high risk of consumer harm.

4. What is not covered?

This is not intended as a post-implementation review of the Consumer Duty, so comments on changes to the Duty are not sought.

5. When are responses due?

Comments are due by 31 October 2024. The FCA has committed to carrying out “an extensive programme of engagement with interested parties over summer and autumn 2024” – we expect that the FCA will be reaching out to firms via supervisors and industry bodies over the coming months.

They intend to publish again on this topic in early 2025 – we expect that this will be a Consultation Paper.

6. How does this tie in with other FCA initiatives?

This ties in with the FCA’s (relatively) new Secondary Objective; to facilitate the international competitiveness of the UK economy. Alongside this Call for Input, the FCA is also considering simplifying rules in the commercial insurance sector re customer categorisation (DP 24/1). The recent overhaul of the listing regime also focusses on streamlining the rules with the removal of over 50 pages from the Handbook (see our briefing on this here: The New UK Listing Rules: What do they mean for you? | Simmons & Simmons (simmons-simmons.com)). The FCA also link to the Rule Review Framework and the Smarter Regulatory Framework – which concerns the transfer of assimilated EU financial services law into the Handbook. The Call for Input is intended to support both of these initiatives by adopting a thematic approach to retail conduct rules with an outcomes focus. An example they give of where they are already working towards an outcomes-focussed regime is the disclosure requirements for Consumer Composite Investments (the replacement for PRIIPs). They have confirmed that a Consultation Paper can be expected on this initiative in 2024 (it was expected H1 2024 but has been delayed). The FCA also state that distance marketing and consumer credit are areas in which they may want to consider further simplification of rules, as the high-level requirements under the Duty may be sufficient to ensure appropriate levels of consumer protection.

7. What should I do now?

We would suggest that you consider across your retail business lines where you would like to see a rationalisation or replacement of the Handbook rules. As we say above, our interpretation of the Call for Input is that this is not limited to areas impacted by the Duty. Some areas that you may want to add to your ‘shopping list’ could be disclosures or client consents, for example.

We would recommend thinking about this in light of the EU Retail Investment Strategy – is it better to have consistency across your UK and EU retail business? Or to have more permissive rules in the UK?

You should also consider how you want to reply – individually or via an industry body. Simmons will be putting together a response and we hope to work with industry groups on this too.

Please let us know if you would like to discuss any of the above.