With the FCA’s latest Call for Input being published just two days before implementation of Consumer Duty for closed books, you would be forgiven for assuming that it is looking for feedback on Consumer Duty.

However, that is not the case and the FCA is seeking feedback on the, albeit closely related, retail conduct rules and guidance.

Call for Input: Review of FCA requirements following the introduction of the Consumer Duty

The current retail conduct rules consist of the conduct of business requirements set out in the FCA’s Handbook. They cover the activities of firms in the banking, consumer credit, funeral plans, insurance, investment and mortgage sectors. Through this CfI, the FCA is inviting comments on the following areas in particular:

• Whether any detailed rules or guidance can be simplified
• How any steps towards simplification would affect the FCA’s statutory objectives
• The balance between high level and prescriptive rules
• The benefits and costs of potential simplification

A key point in the CfI is whether there is a lack of clarity in how Consumer Duty rules and existing retail conduct rules interact, potentially creating confusion in what standard is to be applied in the relevant circumstances. The FCA notes that this could increase the compliance costs and overall burden on firms so are seeking views on which rules are similar but not identical to the Consumer Duty standards. Views are also sought on whether there are any rules which are overly prescriptive and invites firms to consider what the benefit from simplification could be in that particular case.

The FCA also raises the potential for a hybrid approach between high-level and detailed rules. This would place reliance on the Consumer Duty for general principles, whilst also having more detailed rules sitting underneath to achieve a more effective or clearer regulatory position. The CfI invites firms to comment on when it could be appropriate to rely on such an approach.

Commentary

If you dialled into the FCA’s Consumer Duty: 1 Year On webinar you’ll have heard lots of frog analogies, but this Call for Input also got a mention. This provided further context for the CfI and whether other existing rules could be removed in light of Consumer Duty coming into force for all products. The FCA noted that there may be a market segment context to whether firms would want higher level retail conduct rules with larger firms potentially preferring higher level principles and smaller firms looking for more prescriptive requirements.

This CfI appears to continue the shift started by Consumer Duty towards more principle-based rules rather than specific requirements which may be harder to comply with (or evidence compliance with) depending on where you sit on the debate. It will be interesting to see if the responses do align with the FCA’s view that larger firms prefer higher level rules and vice versa, however, all firms need a degree of certainty in how compliance may be achieved, and prescriptive rules may provide a clearer route to this.

It is interesting to note that the FCA is seeking views on a hybrid approach, with defined benefit transfer advice being given as an area which there may be justification in keeping more detailed rules, due to the high risk of consumer harm. This hybrid approach would retain higher level principles like Consumer Duty underpinned with more specific rules where it is necessary to protect consumers or otherwise promote good market practice. Whilst, overall, the CfI appears to be calling for a simplification of the rules, which will be welcomed by some firms, the FCA doesn’t appear to be saying that the Consumer Duty or other high-level rules can replace all detailed rules currently in the Handbook.

The FCA has specifically said that they are not seeking views on Consumer Duty at this time as they intend to carry out a post-implementation review at some point in the future. It is very hard to separate Consumer Duty from the retail conduct rules given how overarching Consumer Duty is, so it’s likely that there will be significant cross over in the responses between feedback relating to the retail conduct rules and feedback on the Consumer Duty itself.

The CfI closes on 31 October 2024 and the FCA intends to publish its approach, taking into account the feedback gathered through this CfI, in early 2025.

To discuss any points made within this blog, please feel free to contact our team.

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