That’s according to the Personal Investment Management and Financial Advice Association (PIMFA). In PIMFA’s response to the consumer duty consultation, Simon Harrington, senior policy advisor for PIMFA, said it broadly welcomed the introduction of consumer duty, which he said was a “significant intervention”.
The FCA launched a consultation on a new consumer duty in December, as it had seen many examples of firms presenting information that exploited the behavioural biases of their customers, selling products or services that were not appropriate or provided poor customer support.
The consultation is due to close today.
However, Harrington said that for it to succeed firms need to be given “adequate clarity” on the detail of the duty and how it will be implemented, and that necessitated having more time.
Harrington said that it was “puzzling” that such a “transformative” piece of regulation is due to be implemented in the short lead time of nine months, adding that it was “not sufficient” and pointed to additional and substantial regulatory changes firms already had to make.
He continued: “Before taking steps to apply the duty on a forward looking basis and ensuring that systems and processes are fit for purpose to measure it, the application of the duty to firms’ back books means that firms will have to undertake the onerous task of file reviews which may date back over multiple decades which will be extremely time consuming and resource intensive.”
Harrington added that the Covid-19 pandemic, which brought increased data requests, along with changes to the appointed representative regime, financial promotion rules, the application of the Investment Firms Prudential Regime and challenges to operational resilience were already “significant resource and cost challenges for firms”.
He said that a two-year implementation period would be more appropriate given the scale of change required.
‘Lack of alignment’ between consumer duty and FCA handbook and Financial Ombudsman
Harrington also said it was concerned around the “inherent subjectivity” of the duty and how it may be interpreted when complaints are made to the FOS.
He said: “Given the lack of alignment between your own handbook and that of the Ombudsman, whilst we believe that it is right that you set your expectations to the FOS, we draw little comfort from this given it has no obligation to act upon these expectations.”
Harrington continued that it was concerned around how the duty would apply to firm’s back books, which it said “amounts to retrospection”.
“We do not think that it appropriate to apply certain outcomes – specifically products and services as well as price and value – to services and products which consumers agreed to buy and fully understood before the duty was implemented and, in many cases, wildly different market and economic circumstances,” he added.
Harrington emphasised that the association believed there was scope for the guidance to be improved and the wording could be reconsidered, as in some cases the FCA had outlined what firms “should do”.
He explained: “The prescriptive nature of this guidance is inconsistent with the application of the duty as principles based regulation. You should clarify whether or not the guidance outlines examples of what firms ‘should’ do in order to meet their obligations or whether or not firms ‘could’ do it in support of it.”
Harrington concluded that, although it was outside the scope of the consultation, the FCA should consider how the consumer duty can be applied to the handbook.
He said: “There are already overlaps which exist as a result of the duty which we consider can now be disapplied – Treating Customers’ Fairly is an obvious example from our sector.
“During the implementation period and beyond, we would urge you to consider whether or not the handbook can be slimmed down in order to make compliance easier for firms as well as reduce the potential for confusion on their part.”
