Firms should therefore always have a plan B available and have agreed procedures and processes in place for how they propose to rectify data gaps, such as enhanced testing procedures as the FCA has suggested.
2. Demonstrating fair value on closed products
The topic of fair value assessments has been a recurring theme in the FCA’s initial feedback on the consumer duty, and it looks to be the area where it will apply, at least initially, the most scrutiny.
As Mills set out in his speech, the FCA is aware that historic products may not offer fair value to customers, and that “in some cases, customers in legacy products might pay higher charges than they would for open products, where firms are competing for new business".
However, it has been made clear that firms must assess, and be able to demonstrate, that their closed products provide fair value.
Firms will therefore be needing to ensure that their fair value assessments are being continuously reviewed and updated as necessary to ensure these address closed products, and that these assessments are in place by July 31 2024.
Depending on internal timings, firms may wish to tie this task in with their annual board assessments for the consumer duty. Equally however, the task is a significant exercise and is not one that can be addressed in one single meeting – firms must ensure they are starting early with these assessments.
Given the FCA’s comments about historic products potentially not providing fair value, firms may be concerned about what results their assessments may present.
However, Mills’ speech did confirm that the FCA is not proposing to judge firms with the benefit of hindsight, and that it does not expect firms to re-price products or repeat underwriting in every case.
But he did add that “if a firm could have reasonably known that its assumptions were significantly wrong at the time a product was sold, we will consider if the firm complied with rules that were in place at the time”.
3. Addressing 'gone away' customers
This relates to customers who are not engaging with firms or who do not wish to be contacted, and those who do not engage with the product generally.
The concern here is that customers may be inadvertently paying for products they no longer want or need, or that they are not made aware of changes to products made over time.
Mills confirmed that, while the FCA recognises this isn’t a ‘new’ problem, it still expects firms to go further to provide good outcomes for these customers.
