So, this part of the process is particularly important to ensure firms and individuals are on the right side of the regulator come implementation.
3. Allocate responsibilities and ensure IT systems are in check
Complying with the requirements will necessitate additional reporting to the FCA on an ongoing basis, and this is really important to remember.
Systems, controls and measures will need to be enhanced to provide the required oversight and ensure potential redress situations are properly quantified and reported.
However, before this step can be taken, responsibilities must be allocated among senior managers to oversee the process. IT systems must also be reviewed and updated if necessary, to ensure the business has the right tech infrastructure to support implementation.
4. Leverage your consumer duty framework
As previously stated, the capital redress requirements go hand in hand with the consumer duty as part of the FCA’s consumer investment strategy.
Therefore, to create efficiencies, firms should be leveraging their management information and data on consumer outcomes, obtained when complying with the consumer duty.
This data, if collated properly, will include indicators of future payments for unresolved complaints and/or redress payments in instances where advice led to a poor consumer outcome.
From this information, firms will need to calculate the capital required to pay redress for unresolved complaints, or future redress from recurring or systemic issues and foreseeable harm.
However, the interwovenness between the consumer duty and the capital redress proposals can do more than simply create efficiencies when implementing the latter regulatory change.
From these two regulatory requirements, firms can gain a clear picture of the FCA’s direction of travel, which is to encourage greater proactivity, amongst personal investment firms, to ensure customers are treated fairly and receive good outcomes.
So, follow the advice of the regulator and take the initiative now to be ahead of implementation and prepared when that day comes.
Also, central to these proposals will be the classification of vulnerable customers. According to a More2Life vulnerability report, 30 percent of advisers have clients classified as vulnerable.
This figure is up from 15 per cent in 2021, but with the FCA focusing firms on recognising vulnerability, we would expect the number to increase further.
These are individuals who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.
According to the FCA, this could include: individuals with poor health; those undergoing life events, such as new caring responsibilities; and those with low resilience to cope with financial shocks.
The consumer duty should have improved the process of identifying vulnerabilities in customers among the adviser community, but the adequacy proposals will, again, shine a light on this as the FCA works to ensure firms can recognise customers displaying characteristics of vulnerability and make sure they experience the same quality of outcomes.
