What the new Consumer Duty Rules mean for accountants

The expectations, benefits and impact of the new regulations on accountants and their clients.

On 31 July 2023, new Consumer Duty Rules came into force which place greater emphasis on financial service firms to ensure fair value and good outcomes for customers.

Introduced by the Financial Conduct Authority (FCA), the new Consumer Duty refers to the addition of a new principle – Principle 12. This, together with eleven existing principles, forms part of existing guidelines for FCA-regulated businesses.

In essence, the Consumer Duty Rules require FCA-regulated businesses to:

• Act in good faith towards customers
• Avoid causing foreseeable harm
• Enable customers to pursue financial objectives.

The rules also centre around four main outcomes:

• Product and service outcome (Is the product/service fit for purpose?)
• Price and value outcome (Does it provide ‘fair value? Is there a reasonable relationship price and customer benefit?)
• Consumer understanding outcome (Do customers have enough understanding and comprehension to make informed decisions?)
• Consumer support outcome (Does design and delivery meet the needs of customers?)

The second deadline for Consumer Duty Rules is 31 July 2024 which looks at legacy products – products which are no longer sold or available but which are still serviced and operated.

Accountants who provide advisory services to FCA-regulated clients will need to be familiar with Consumer Duty Rules – including key dates – to ensure their client is meeting the requirements.

We spoke to accountants and financial specialists to find out more about what the new rules will mean for accountants and their clients in terms of benefits, expectations and impact.

Accountants will need to be a ‘critical friend’ to financial service clients to improve standards

Ewen Fleming, Partner, Head of Consulting and Rob Sargent, Senior Manager, Johnston Carmichael Chartered Accountants and Business Advisors

The new Consumer Duty Rules introduce Principle 12: “a firm must act to deliver good outcomes for retail customers” as an addition to the existing principles enforced by the FCA.

Principle 12 enforces stricter requirements around how firms communicate their offerings as well as testing customer comprehension. Do customers understand the products on offer and the different options available? Do they fully understand the implications? Products and services offered also need to be appropriate to the customer and their situation, taking into account vulnerabilities including disabilities. Vulnerabilities could be temporary or permanent (bereavement, financial stress or those with literacy or numeracy comprehension difficulties for example).

Many accountants offering advisory services to financial services firms impacted by these rules will be able to support their clients to meet the new standards and help them identify and evidence remediation of any potential gaps or shortcomings.

In terms of benefits to consumers and businesses, the Consumer Duty has been introduced to improve their customer experience and prevent foreseeable harm. Examples of the improvements they may see are: pricing changes or improved benefits in relation to the products they hold; choice of a better-priced option if available; and the redesign of products and services to give them a consistent experience and offering regardless of the channel their journey started in.

Verdict: Accountants with an advisory role can be a critical friend to financial service clients, supporting them to identify and repair any gaps or shortcomings and ultimately helping to improve standards in the financial services sector.

The rules will aid time-poor businesses with quicker decision making

Stuart Crook, Partner, Wellers

The new consumer duty rules set higher and clearer standards of consumer protection for financial services and require firms to put customers’ needs first.

The difficulty lies in situations where we are asked incorrectly posed questions. Some questions simply don’t have definitive answers, require extensive research, or are not easily quantifiable for exact time or cost estimates. For example, completing a tax return can include the same components but may be more involved depending on the information, circumstances and interpretation of the clients.

In any business, particularly ours, we try to present all information so the customer can make informed decisions. They will then understandably look for comparative services and costs.

Yet many business owners are often time-poor – they don’t want to pore over multiple considerations, they just need to make quick decisions and the new rules are aimed at achieving this.

The question we get asked is ‘how much tax do I have to pay?’. The expectation is that you apply every possible relief or exemption. However, a number of these may be ‘grey areas’ that need more explanation and require us to provide a caveat for potential risks. At some point they want you to make assumptions based upon our knowledge and experience of them as a person and business, based upon a long-term relationship. They don’t simply want a yes or no machine.

So, for businesses, the benefit will be quicker decision-making and less back and forth, which will reduce admin time. Meanwhile, it will allow financial experts to spend more time carrying out the task at hand, which can only be more efficient for all concerned. 

Verdict: The rules will aid time-poor businesses with quicker decision-making due to increased standards and customer protection.

Firms will need to exercise judgement and a reasonable approach to customer communication

AR Tamin, Financial Accountant, PowerYourCurls

The consumer duty requirement meets diverse consumer needs at every stage of their purchasing journey and ensures clear communication, effective support and high-quality products and services.

The rules also ensure that products and services should sell at a price that is reflective of their true value without excessive fees.

Under the new rules, firms need to exercise judgment and create a reasonable approach to monitoring consumer communications and act where issues are identified. They should have appropriate governance processes established to oversee communications sent as part of their anti-financial crime due diligence activity, and they should consider securing a record of any relevant actions taken.

If part of the anti-financial crime program activity is outsourced to a third-party vendor, the firm is still responsible for ensuring the outsourced meets the duty.

In terms of benefits, the rules will make it easy to evaluate or identify any potential problems or cancel a product. It will also aid better understanding resulting in better outcomes.

Verdict: Firms will need to exercise judgement and a reasonable approach to improved customer communication leading to better outcomes.

Businesses now have to document and evidence their processes around products and services – not just talk about it doing it

Andy Severn, Tax Expert and Director, Duncan & Toplis

Consumer Duty sets higher and clearer standards for businesses to review when it comes to products and services as well as evidencing they are delivering good outcomes for their clients.

This means that all financial advice businesses should have reviewed their processes and in particular the products and services they provide, the ways they communicate with their clients, pricing and the delivery of timely advice.

For many firms this is, and always will be, an ongoing review item. However, businesses now have to fully document their processes rather than just saying they do it!

Verdict: Under Consumer Duty Rules, businesses now have to document and evidence their processes towards delivering good outcomes – not just talk about doing it.

Annie Makoff is a freelance journalist and editor.