Consumer Duty – Handbook changes

What are the main proposed changes?

Approving or communicating financial promotions

The FCA has clarified which parts of the Duty apply to firms that only approve or communicate a financial promotion.

In addition to the Consumer Principle, the cross-cutting rules and the consumer understanding outcome, the FCA proposed that these firms should also consider the rules on monitoring and governance and the supporting provisions, such as those relating to reasonableness and redress.

In light of these potential changes, the FCA has proposed minor amendments to the rules so that aspects of the Duty can also be applied to firms in the Temporary Markets Permissions Regime.

Changes to the closed product definition

The FCA clarified that, under the Duty, a closed product is a product or service that is no longer open for sale or marketed to new customers, or no longer open to renewal for existing customers. A product cannot be classed as closed if it is still being distributed.  

To avoid any potential misunderstandings, the FCA proposed removing the ‘distribute’ term in the ‘closed product’ definition.

The FCA also plans to change the ‘closed product’ definition to clarify that an occupational pension scheme would be classed as closed where new members cannot join the scheme. 

Occupational pension schemes

The FCA has proposed clarifying the definition of ‘retail customer’ to include any person who is not a client of the firm but who is, or would be, a beneficiary of an occupational pension scheme (rather than a beneficiary in relation to the investments held in the scheme).

Duty exclusion for non-retail financial instruments

The Duty contains an exclusion for certain activities linked to financial instruments designed for wholesale investors (non-retail financial instruments). The FCA clarified that it did not intend this exclusion to cover firms in a distribution chain that design and distribute funds for retail customers.  

The FCA proposed to amend the exclusion so that it is not available in relation to investment funds.

Sectoral sourcebooks

The FCA is consulting on a new rule and guidance to clarify that the Duty follows the scope of existing sectoral rules.

This follows stakeholder feedback that PRIN 3.2.8R could be read to mean that the Duty only applies where sectoral sourcebooks include specific rules for an activity.  This was not the FCA’s intention.

Reference list

[1] - PS22/9: A new Consumer Duty (fca.org.uk)

[2] - CP22/26: Quarterly Consultation Paper No. 38 (fca.org.uk)