On 31 July 2023, the Financial Conduct Authority (FCA) announced a new 14-point action plan to help ensure banks and building societies pass on fair interest rates to savers and comply with consumer duty standards.
The 14-point plan will help to ensure banks communicate effectively and transparently with their customers and offer them better rates than they have historically.
Why do we need the action plan?
The origin of the action plan was the FCA’s discovery that nine of the most popular savings providers only passed on 28% of base rate rises to their easy-access customers between January 2022 and May 2023.
Although the FCA found that pass-on rates were higher for those with notice and fixed-term deposit accounts (58%) they indicated that this figure is still too low.
The new action plan outlines 14 points to enforce fairness for consumers, eight of which dictate what the FCA will execute and six that outline what is expected of firms.
When will the action plan be enforced?
The FCA’s action plan was announced on July 31st, 2023, and action was expected to be taken with almost immediate effect. However, these action points were set primarily to ensure firms are compliant with Consumer Duty before its enforcement in 2024.
Here are some key deadlines to be aware of:
• December 2023: FCA to have taken robust action against firms that have not yet demonstrated fair value
• December 2023: Larger firms to have provided FCA with an evaluation of their customer communications.
• 31 March, 2024: FCA will review firm’s engagement with their customers and its effectiveness
• 31 July, 2024: Consumer duty applies for off-sale products
The FCA’s 14-point action plan was set out with the main goal of making the distribution of financial products fairer for customers. Alongside that generic goal, the expected outcomes of the plan include:
• Further transparency for consumers
• Better rates
• Lessening of the gap between on-sale and off-sale rates
• Enabling more consumers to access higher-paying and interest-bearing accounts
• Strengthening the financial position of consumers
• Ensuring firms are acting in good faith
One of the first actioned outcomes of the new plan came in early September when the FCA revealed they would be requesting value assessments from nine banks.
Commenting on the news, Consumer Duty specialists MorganAsh said, “In its first public intervention, the FCA has asked nine banks and building societies to provide value assessments on its saving products. It follows concerns that interest rate rises are not being passed to customers and their savings accounts. In July, the FCA issued a 14-point action plan to ensure banks are offering better savings rate deals.”
While it has not been revealed which banks are to be assessed, the news serves as a reminder that all financial services and banks are now bound to meet Consumer Duty requirements and those that do not will face investigation.
What part does Consumer Duty play?
Consumer Duty aims to set a higher standard of protection in financial services to make sure consumers receive fair value and prices compared to the benefit they receive from the service on offer.
There are four main expected outcomes from Consumer Duty:
• Products and Services: must be designed to meet customers’ needs and be appropriately distributed
• Price and Value: ensure a reasonable relationship between price and benefit
• Consumer Understanding: provide the necessary information in an understandable format to make sure customers understand how products work
• Consumer Support: offer support that meets consumers’ needs
For on-sale products, Consumer Duty came into effect on July 31st 2023, and will come into effect on July 31st 2024, for off-sale products.
The move towards Consumer Duty-based practices meant that both the FCA and financial firms needed to change the way they act. That’s where the 14-point action plan comes in, as it specifically details what is expected of both the FCA and financial firms and the deadline for their implementation.
What does Consumer Duty mean for IFAs?
Financial advisers have a considerable part to play when it comes to making sure the requirements of Consumer Duty are met.
To make sure you’re in line with the expectations, take steps to review the business practices you’re currently implementing and whether they’re offering consumers the highest possible service when it comes to communication, transparency and fairness.
It’s also very important to pay additional attention to any customers deemed as vulnerable as they might require extra measures of protection.
For IFAs already operating fairly and honestly, Consumer Duty should not cause much disturbance to everyday business. However, regardless of the quality of your current service, the implementation of Consumer Duty and the 14-point action plan offers a great opportunity for reflection, assessment and progression of your business and the industry in general. For example, IFAs could consider including advice on cash savings in the service provided to customers to ensure their service is as transparent and informative as possible.
This article was written for International Adviser by Andrew Waring director of intermediary at Stubben Edge.