While different information will be required depending on a firm’s business model, all firms are now expected to provide a financial forecast that illustrates that products are of fair value, and that additional costs and charges are price reflective rather than being used to generate profit.
Speaking to Ozge Ibrahim on the latest episode of the Inside FCA podcast, Alex MacDermott, technical specialist at the regulator outlined what is expected from firms as they prepare for the consumer duty deadline in July.
MacDermott explained that while the consumer duty is a big change in regulation, it does not change the standards the regulator assesses firms against at the gateway.
“Firms still need to show us that they've got appropriate financial and non-financial resources, they still need to show that they can run the business in a sound and prudent manner and that they're suitable,” MacDermott said.
It would be really helpful if firms, when they're making the applications don't try to sugarcoat anything
He added: “They also need to show that they can be effectively supervised and meet what we call the location of offices threshold condition as well.”
However with the consumer duty, the regulator will now assess whether a firm seeking authorisation can meet and comply with all the requirements of the consumer duty handbook.
This means that throughout the application process, the firm will need to demonstrate throughout all of their systems and controls and their regulatory business plan that it has put the customer “at the heart of what they do”.
“So, they're going to need to provide quite a lot of information in their application form and probably also in some supporting documents like their regulatory business plan,” MacDermott explained.
“Now the thing with that is there are some things in the rules that are going to require maybe a specific policy such as a fair value assessment or an annual outcome monitoring plan. But there will be other elements that maybe just go through the firm like a stick of rock,” he added.
MacDermott gave the example this might be things like how it designs financial promotions or how it explains and creates prospectuses of products or terms and conditions or customer leaflets.
“So, I suppose what I'm saying is there's a lot in the consumer duty and it does mean that we're going to have a different lens that we look at when we look at application forms.
“And it would be really helpful if firms, when they're making the applications don't try to sugarcoat anything, tell us how it is,” MacDermott said.
