PIMFA
PIMFA WEEKLY NEWS BULLETIN
3 July 2023
CONSUMER DUTY CORNER - 4 Weeks to Go!
With one month to go to the coming into force of Consumer Duty, the FCA has published a number of communications aimed at ensuring that firms are on track and making the most of the remaining time.
10 key questions (extracted from the finalised guidance) have been highlighted by the FCA:
1. Are you satisfied your products and services are well designed to meet the needs of consumers in the target market, and perform as expected?
2. What testing has been conducted?
3. Do your products or services have features that could risk harm for groups of customers with characteristics of vulnerability? If so, what changes to the design of your products and services are you making?
4. What action have you taken as a result of your fair value assessments, and how are you ensuring this action is effective in improving consumer outcomes? What data, MI and other intelligence are you using to monitor the fair value of your products and services on an ongoing basis?
5. How are you testing the effectiveness of your communications? How are you acting on these results?
6. How do you adapt your communications to meet the needs of customers with characteristics of vulnerability, and how do you know these adaptions are effective?
7. What assessment have you made about whether your customer support is meeting the needs of customers with characteristics of vulnerability? What data, MI and customer feedback is being used to support this assessment?
8. How have you satisfied yourself that the quality and availability of any post-sale support you have is as good as your pre-sale support?
9. Do individuals throughout your firm – including those in control and support functions – understand their role and responsibility in delivering the Duty?
10. Have you identified the key risks to your ability to deliver good outcomes to customers and put appropriate mitigations in place?
These questions provide a good indication of the FCA’s focus post the deadline, so it is important for firms to consider them carefully and use them to identify gaps and areas of improvement.
You can read the FCA web-page in full here.
FREE CONSUMER DUTY PAPER
Our latest FREE CONSUMER DUTY PAPER includes:
• A summary of the Consumer Duty requirements and some of the challenges firms face
• Practical guidance on likely FCA expectations
• Steps firms should be taking to meet them, based on each of the questions above.
• Tips for firms on substantive compliance and what this means in practice
• And a 'Consumer Duty Self-Assessment tool' by Altus Consulting. This is a free tool to help firms assess their progress in complying with the Consumer Duty against a common industry benchmark
We are grateful to our Associate Member firms –KPMG, Shoosmiths, DAC Beachcroft, Altus Consulting - and the individuals who contributed their time in producing this paper.
FCA Podcast: Explaining Consumer Duty outcomes monitoring
In this podcast, Ed Smith, Head of Competition Policy at the FCA, explains the expectations for outcomes monitoring under the Consumer Duty. The Duty requires firms to assess, test, understand and evidence the outcomes their customers are receiving. Ed outlines why the FCA put these requirements in place, how firms should go about monitoring outcomes, and the processes they should use to ultimately ensure they achieve good outcomes for their customers.
In the podcast, the FCA emphasises that firms need to have a data strategy in place to monitor customer outcomes, together with systems and processes capable of analysing that data and identifying poor outcomes. It was particularly important to determine the root cause of poor outcomes so that firms can effectively remediate them and tackle them at an early stage.
In terms of what data to collect, the finalised guidance gives examples of the types of data that firms can consider. And a lot of that information is data that firms should really already have, like business persistence data, customer retention records, customer complaints, customer feedback, staff feedback. It was recognised that firms will have different capabilities depending on their size, their resources, their activities. So, while all firms should be able to
deliver good outcomes for their customers, their approach to the Duty and the evidence that they use to demonstrate good outcomes can vary.
The FCA do not expect a small firm to be able to apply the same resources or processes as a large firm. In relation to governance, the FCA expects firms to ensure that the interests of their customers are central, really embedded into their organisations. So, boards, governing bodies should ensure that the Duty is really considered in all relevant context.
From day one, firms should be able to demonstrate that they are acting to deliver good outcomes and protecting consumers from harm and should be able to use some types of data to demonstrate and monitor this. They need to show they’re equipping customers with the communications that they can understand, they’re providing products and services that meet their needs and offer fair value. However, the FCA also recognises that firms will have longer term strategies to develop the data that they need to really understand those better in the future and is open to support and help firms in that regard.
You can listen to the podcast here.
PIMFA Consumer Duty Microsite
Visit the PIMFA site here to access all of the up-to-date and relevant information, including:
• 10 key things you need to know
• Key actions for firms
• PIMFA Guide for the Consumer Duty implementation plan
• Our new free paper (as above)
FCA Survey
The FCA has provided feedback on the results of a Consumer Duty survey carried out between
March and May 2023. The survey was focused on sectors and sub-sectors where it appeared that firms may have been less engaged and prepared, so it is not representative of all firms subject to the Duty. The key findings were the following:
• There were very high levels of engagement and understanding of the Duty
• Most firms believed they were on course to implement the Duty by the 31 July deadline. 64% of firms surveyed said they would be fully compliant by the deadline and a further 23% said they would comply with most requirements by the deadline but would still have some work to do. 7% of firms surveyed said they would still have significant work to do after the deadline or had not started work on the Duty.
• Firms had made use of the support provided by the FCA and found it helpful. Areas where further support would be helpful were outcomes monitoring and the price and value outcome.
• The FCA made it clear that firms need to make the most of the time before the 31 July implementation deadline.
• Firms that are confident that they will meet the deadline need to make sure that they remain on track. Boards and management bodies should assure themselves that their firm has fully engaged with the details of the requirements and the shift to focus on consumer outcomes.
• Firms that are struggling to meet the deadline, should prioritise action that improves consumer outcomes and reduces risks of harm and should concentrate on identifying gaps and weaknesses.
• Firms that have not taken the duty seriously and have done very little, should make strenuous efforts and prioritise work that will have the greatest impact on customer outcomes.
• Firms must alert the FCA if they believe they will be in significant breach of the Duty
You can read the full survey report here
PIMFA Index Series Questionnaire
PIMFA would like to gain a deeper understanding of how your firm is using the PIMFA Index Series, so we have constructed a brief questionnaire, featuring mainly multiple-choice responses, which should take no more than 5-7minutes to complete.
To access the survey, simply click here or scan the QR code below using your mobile device.
Your response is important to us and we very much appreciate the time taken to provide this information.
PIMFA responds to HMRC consultation: ‘Stamp Taxes on Shares modernisation’
In our response, we offered support for the proposal to modernise the current Stamp Taxes on Shares framework, which encompasses Stamp Duty on paper-based share purchases and Stamp Duty Reserve Tax (SDRT) on dematerialised share purchases. Initiatives which aim to streamline any stage of the settlement process are to be welcomed as they help PIMFA members to simplify processing, improve efficiency, and reduce errors, costs and risk.
HMRC has highlighted the inconsistencies between the Stamp Duty and SDRT legislation, and it makes sense to want to address those inconsistencies and remove uncertainty by replacing the existing legislation with one simple set of rules governing stamp tax.
In a broader context, we highlighted to HMRC that PIMFA and its members would be supportive of any future proposals to reduce the Stamp Duty burden on share purchases to encourage investment, promote the international competitiveness of the UK marketplace and bring shares in line, from a tax perspective, with purchasing other types of financial instruments.
The full response can be read here
PIMFA responds to DSIT & OAI policy paper: 'A pro-innovation approach to AI regulation'
In the PIMFA response, we welcomed this Department of Science, Innovation and Technology (DSIT) / Office for Artificial Intelligence (OAI) White Paper as a timely, carefully considered and detailed exploration of the approach to regulating Artificial Intelligence (AI).
If the UK is to become established as an AI superpower and a global leader in the adoption of AI, we agreed that it is essential to ensure the potential of AI is not limited or hindered by excessive or disproportionate regulation. We also acknowledge that the continued success and growth of the Wealth Management and Financial Advice sector relies on establishing and maintaining a bond of trust between 'trusted advisor' and client.
We need an effective, flexible and agile regulatory framework which allows firms to introduce AI components that will enhance their offerings to clients while ensuring appropriate levels of investor protection are maintained.
AI has vast potential to deliver significant benefits to our members and their clients by improving efficiency, reducing costs and risks, and offering more and better client services, which can lead to improved consumer outcomes. However, while AI can be an effective and powerful 'servant', it also has the potential to be a bad 'master' if it is not fully understood and carefully managed by those who deploy it. AI comes with risks that could negatively impact consumers, market integrity, and financial stability. It is, therefore, vital that it is managed within a targeted regulatory structure to provide appropriate protections to individuals and markets while ensuring the regulatory approach is flexible and easily implementable for organisations.
We expressed the view that there is no need to introduce new legislation to facilitate the regulation of AI in financial services - the existing principles based regulatory framework is already fit for purpose. We supported the proposal that regulators should produce clear and consistent guidance on how the principles work when placed alongside existing legislation, clarifying how the current legal requirements and supervisory expectations will apply to AI. We also expressed support for the potential use of technical standards to give consistent assurance that AI is being developed and deployed responsibly and safely.
The full response can be found here.
HMT publishes Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2023
On the 27th June, HM Treasury published the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2023, a statutory instrument amending the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. The Statutory Instrument amends Schedule 3ZA of High Risk Third Countries by removing Cambodia and Morocco, which are no longer classed as highrisk third countries for the purposes of enhanced customer due diligence requirements in regulation 33(1).
PIMFA Spring/Summer Journal is Live!
Welcome to the Spring/ Summer 2023 edition of the PIMFA Journal, containing thought leadership articles written by PIMFA member and associate member firms on current industry issues and hot topics.
City & Financial Consumer Duty Implementation Summit
On the 20th June, Alex Roberts, PIMFA Head of Regulatory Policy and Compliance and Consumer Duty lead, joined a panel at the City and Financial Global Consumer Duty Implementation Summit, to discuss embedding a consumer duty compliant culture across organisations. The focus of this panel was on culture, how to shift firms’ focus on good customer outcomes, how to embed a customer-centric approach with employees and how to measure and evidence culture.
HM Treasury: Chancellor to sign FS agreement with EU
HM Treasury has announced that Chancellor Jeremy Hunt is expected to sign a memorandum of understanding (MoU) on financial services which sets out plans for UK-EU cooperation. The MoU will establish an ongoing forum to discuss voluntary regulatory cooperation on financial services issues. Both sides will share information, collaborate to meet joint challenges and coordinate positions (where appropriate) ahead of international meetings.
Skillcast webinar: "Shaping Digital Markets"
Featuring industry experts David Ostojitsch from PIMFA and Fredrik Daveus from Kidbrooke, the session, to be held on Wednesday, Jul 19, 2023 11:00 AM - 11:45 AM, delves into various aspects of navigating the digital landscape and brings to light three key takeaways that warrant further exploration.
Register for the webinar here
HMT approval of JMLSG Guidance
JMLSG has received Treasury Ministerial approval of its guidance material published in March 2023, November 2022 and August 2022. This includes various revisions to Part I and Part II. You can access the JMLSG Guidance here
ISSB issues inaugural global sustainability disclosure standards
On 26 June, The International Sustainability Standards Board (ISSB) issued its inaugural standards, IFRS S1 and IFRS S2, ushering in a new era of sustainability-related disclosures in capital markets worldwide. The Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.
For the first time, the Standards create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects. FRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.
Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The ISSB will work with jurisdictions and companies to support adoption.
