Compliance Digest - 10th May 2024

It has been quiet again on the regulation front. This week I cover two issues in depth.

I have summarised reactions to the FCA Consultation Paper CP24/2 about changes to the Enforcement Guide and publicising enforcement investigations.

There has also been commentary about the price and value outcome of the Consumer Duty which I also summarise.

FCA review of enforcement

In February 2024, the FCA published CP24/2 Our Enforcement Guide and publicising enforcement investigations–a new approach. The FCA intends to use transparency as a regulatory tool and disclose more information about its enforcement activities at an earlier stage in the process.

The FCA proposes publicly announcing that it has opened an enforcement investigation, including the identity of the subject of the investigation, and publishing updates on the investigation if it considers that it is in the public interest to do so.

Through this approach, the FCA intends to promote increased transparency of enforcement proceedings, allowing the financial services sector to be more readily aware of areas of serious misconduct. The intention is that this should encourage the rest of the market to review their own compliance and implement preventative measures, which could deter regulatory intervention in the future.

This has proved contentious with the House of Lords Financial Services Regulation Committee having highlighted its concerns about the FCA’s proposal. This is the committee’s first intervention since its creation earlier this year. The Law firm Womble Bond Dickenson has published a useful summary of the written exchanges between the Financial Services Regulation Committee and the FCA.

In its response, PIMFA told the FCA that, while it supports the principle of an empowered, assertive and proactive regulator, it shares the concerns expressed across the financial services industry about the likely negative impacts the proposal to publicise the name of firms at the start of an investigation will have on the named firms and on the functioning of markets.

PIMFA stated “We believe that the FCA’s objectives can be achieved by publishing the same details about enforcement investigations on an anonymised basis, referencing the firm's sector and type of business. Publishing the rule breaches being investigated and details of the misconduct would achieve the required deterrent and educational aim and equally show that the FCA ‘is on the case’ and proceeding with enforcement actions without the detrimental effect on firms and the market.”

An article in Insurance Post confirms that 16 financial services trade bodies have challenged the proposals in the Consultation Paper.

The consultation closed on 30th April. On 8th May, the FCA wrote to the Treasury Select Committee that it would consider the feedback and would take several months before publishing its decisions.

Regular reviews of your firm’s systems and controls to ensure they are current and follow industry best practice can allay the risk of enforcement action by the regulator. Compliance Matters UK Limited would be happy to work with you to ensure that your firm’s processes and procedures meet industry standards.

Consumer Duty: the price and value outcome

One of the four outcomes that the FCA wants to achieve from the Consumer Duty is that firms price their products and services to provide value for money for consumers. This is not a one-off exercise to have been carried out in advance of the Consumer Duty, it is important that you monitor and review value assessments on an ongoing basis. You must be able to demonstrate that you have assessed what fair value means to your firm and your clients and evidence how you provide fair value for the fees that you charge.

It is important that you understand how your clients define value, and value for money. Value is very subjective. It is not just what is the cheapest product. You should consider the features of a product, how important they to your client, does your client understand the cost of them and does your client see the value in them. The answers will differ from client to client.

To assess whether the price charged and value for money of a product or service is fair, a product provider must consider the benefits of the fees charged and the limitations of the product or service. Advisory firms must look at their charging structures and ensure that fees represent fair value relative to the service delivered. For example, we know that both St James’s Place and Quilter are under scrutiny from the FCA for not delivering an ongoing service to clients that clients have been charged for.

What do clients value from financial services products and providers? Royal London, in conjunction with The Lang Cat, have published a report following research that they conducted. The report contains tables that summarise the research and you can review the results with your own client bank in mind.

The research shows that consumers value good service and security coupled with being able to trust the firm. Above those, consumers value clear communications with any technical terms (or jargon) being explained succinctly. Consumers want to feel that they are getting what they paid for, and that it is worth the fees they are paying. Delivering on this perceived future value then becomes more important than the actual price being paid. If the product or service performs as expected, consumers are happy to pay the price.

When asked what consumers value from a financial adviser, the top five responses were:

That their advice or recommendations are in my best interest.
Has relevant skills and knowledge.
Can help me maximise my returns.
Has a clear fee structure so I know what I am paying for.
Communicates and explains financial concepts well.

The next three are; takes time to understand me and my unique needs, has a good reputation, and is approachable and easy to talk to.

The Lang Cat asked a panel of advisers what they think consumers value from financial advice. The responses were heavily focused on trust, expertise, service, and softer, more personal aspects. Providing peace of mind was the most frequently mentioned response. For most advisers, this is simply providing reassurance that financially the client will be OK. Others expand on this point, offering more in-depth behavioural coaching, and also touching on service-based aspects, such as helping busy people get on with their lives.

Advisers recognise the importance of good service standards, and the value their clients attribute to this. In part this is delivered by developing a good relationship with their clients, but being available for calls and face-to-face meetings is also valued.

When asked to rank a range of factors that clients might value, the top five factors that advisers were:

Gives me peace of mind.
Helps me reach my financial goals.
Communicates and explains financial concepts well
Takes time to understand my and my unique needs
Makes decisions that are in my best interests.

It is interesting to compare and contrast the responses from consumers and advisers, and consider how you think your clients would respond and how they value your services. How would this differ between long-term clients and those who are newer to your firm.

If you want to discuss your proposition and how you can demonstrate that it meets the price and value outcome of the Consumer Duty, please get in touch.

Ian Ashleigh