UK FCA Consumer Duty Closed Products


On May 16, UK FCA issued CEO letters on closed products re Duty.


  • FCA published letters sent to CEOs of regulated firms on Consumer Duty next phase.
  • Letters are to asset management, consumer finance, consumer investments, life insurance, retail banking and all other firms on application of Duty to closed products.
  • Rules applying Consumer Duty to closed products/services in force from Jul. 31, 2024.
  • Follows UK FCA Jul. 2022 final rules and guidance on consumer duty, see #144360.
  • Closed Products
  • Firms must review closed products and services against all aspects of the Duty before Jul. 31, 2024, Boards must satisfy themselves their firms are adequately prepared.
  • Duty applies in full to closed products/services from the deadline, it does not apply to past actions of firms, applies to ongoing actions of firms from Jul. 31, 2024.
  • However, there are differences in way rules apply compared to products and services that are open for sale or renewal, products and services outcome will apply differently.
  • For example, with no need for firms to have target market or distribution strategy.
  • Letters
  • FCA understands firms in some sectors may have no, or very few, customers with closed products/services, but letters may help them consider wider distribution chain.
  • Letters set out the application of Duty to closed products and services; priority issues that are particularly acute or widespread action prompts to aid firm's implementation.
  • Include an annex containing reminder of closed definition, overview of the rules.
  • The letters are basically the same for different sectors, with only slight adjustments.
  • Asset management letter is shorter, with no detailed discussion of the priority areas.
  • Priority Areas
  • FCA highlights 5 key themes firms should be considering in run up to the deadline.
  • Gaps in firms' customer data; fair value; treatment of consumers with characteristics of vulnerability; gone-away or disengaged customers; vested contractual rights.
  • Firms must address any material gaps in customer data for closed products/services, may be challenging due to products being older, data incomplete, on legacy systems.
  • If firm has material gaps in customer records affecting ability to comply with Duty, FCA expects it to be able to show it has taken proportionate steps to address the gaps.
  • Or proactively work around limitations to ensure achieving good customer outcomes.
  • Fair value outcome applied to closed products/services on a forward-looking basis, from Jul. 31, 2024 must comply with price and value outcome of Consumer Duty.
  • Includes that a reasonable relationship remains between price and benefit of product.
  • Must consider whether consumers with vulnerabilities adversely affected by aspects of product design, closed products may create particular risk of harm to such customers.
  • Identify less engaged or gone-away customers and take appropriate action, includes how firms support and communicate with these customers, firms must consumer the actions they need to take, be able to evidence why they took the decisions they did.
  • And follow all reasonable and proportionate avenues to contact these customers.
  • Where firm identifies that it has vested rights and is causing foreseeable harm to customers of a closed product or service, should consider what alternative action they could take to deliver good outcomes for its customers and avoid the harm.
  • Further Information
  • FCA directs firms to its Jul. 2022 finalized guidance on the Consumer Duty, Consumer Duty homepage, and Consumer Duty resources page for further helpful information.
  • Effectiveness
  • FCA expects firms' senior management to carefully consider contents of the letters and take steps to ensure their firm is compliant with Duty by the Jul. 31, 2024 deadline.
  • Firms must ensure, and be to able demonstrate, that they are acting to deliver good customer outcomes, FCA says it will be proportionate to the harm or risk of harm.
  • If firms feel will not be substantially compliant by Jul. 2024 deadline, and/or if any significant issues come to light they should contact normal FCA supervisory contact.
  • Regulator sets out its expectations of firms around any areas of non-compliance.
  • May 24, 2024 Customers With Vulnerabilities
  • On May 24, 2024, UK FCA updated its page Consumer Duty - information for firms.
  • To add a section entitled, Identifying customers with characteristics of vulnerability.
  • The page explains more on areas of the Duty it has been receiving queries on.
  • FCA says it wants firms to be able to identify customers in vulnerable circumstances, understand their needs and to act to meet those needs where necessary.
  • Expects firms to actively encourage customers to share information about their needs or circumstances, where relevant, should have systems and processes to enable this.
  • And support their staff to actively identify signs of vulnerability, e.g. via training.
  • Firms should try to recognize needs of consumers, whatever channel they use, those with digital channels could introduce tools to let consumers to share details of needs.
  • Firms that speak to customers face to face or on the phone can support staff to recognize observable signs of vulnerability, encourage customer to discuss their needs.
  • Unless firms capture such information, unlikely they will meet needs of all customers.
  • Jul. 2024 Reg-Analysis
  • On Jul. 5, 2024, Reg-Track published a Reg-Analysis on the closed products deadline.

Regulators UK FCA
Entity Types B/D; Bank; BS; CNSM; CU; Depo; Exch; IA; IB; Ins; Inv Co; MG Orig; MSB; Pension; Servicer; Thrift
Reference Gd 5/24/2024; Lt, PR, 5/16/2024; FG22/5; UK CNSM DTY; ESG
Functions Compliance; C-Suite; Legal; Market Conduct; Operations; Product Administration; Product Design; Registration/Licensing; Reporting; Risk; Suitability; Technology; Training
Countries United Kingdom
Category
State
Products Banking; Cards; Commodities; Fixed Income; Fund Mgt; Insurance; Insurance-Casualty; Insurance-Health; Insurance-Life; Insurance-Property; Issuance/IPO; Loan; Mortgage; Pensions; Securities; Wealth Mgt
Regions EMEA
Rule Type Final
Rule Date 5/16/2024
Effective Date 7/31/2024
Rule Id 212483
Linked to Rule :144360
Reg. Last Update 5/24/2024
Report Section UK

Last substantive update on 07/08/2024