04
You‘ve only identified minor changes being required...
If a firm is only identifying and implementing minor changes, it may indicate that the focus
has been on ‘window-dressing� rather than a robust and objective assessment. This may be
driven by programme fatigue and/or nervousness about the commercial implications of
robustly applying the Duty. Regardless of the driver(s), it may result in only minor and
inconsequential changes are being made in place of substantial ones. As seen with open
products, FCA will move swiftly to ask for examples of what’s changed and expect to see
substantive changes - it’s vital not to underwhelm them!
Closed products � Five red flags�
01
You’ve identified fewer issues�
Whilst it’s expected there will be common issues across both, firms should expect to find, in
aggregate, more issues with closed products than with open ones. This will be driven by an
increased likelihood for complex, opaque (and typically higher) charges, legacy features,
customers with unrecognised indicators of vulnerabilities, benefits and options less relevant
for today coupled with antiquated legacy IT systems (with sub-optimal data and data quality)
and challenges with customer understanding/engagement. Indeed this is why the FCA gave
firms an extra year “to get to grips with the complexity of older systems and the increased
work involved.�
02
There is a single Consumer Duty standard and it applies equally to both open and closed
products. If the methodology is materially different and/or a higher risk appetite applied, it
will create two standards within the same firm. This inconsistency of approach will struggle
to align to FCA expectations, firms will need to be comfortable that they are holding all
products to the same evidential standards and with equal application of the Duty. Not having
parity between your open and closed books will be incredibly difficult to maintain post July.
03
Whilst grouping of products into families is expected to create efficiencies of application, if
the approach is too simplified and aggregates the assessment of price and fair value, it may
reach a uniform conclusion on price and fair value for the entire family rather than looking at
individual products. For example, aggregating a suite of products making high-margin with
those that are loss-making does not equal fair value for all impacted customers. More
granular analysis and individual conclusions are required.
05
You’re making extensive use of vested rights�
There will be instances where the use of vested rights is appropriate. However, if used too
liberally, it could be used to avoid making required changes under the Duty. Firms in this
situation need to think beyond a legalistic mindset of ‘can we?� towards a more subjective
and holistic ‘should we�?� Terms enshrined in vested rights may still lead to poor outcomes
for consumers with closed products (e.g. if the fee levied is significant such that it
undermines the fundamental benefits of the product.)