Consumer Duty has set the higher regulatory expectations for firms to consistently and demonstrably provide good outcomes for their customers. The requirements apply to all product and service offerings (affecting retail customers), including closed book products.
Closed products are those which are no longer actively sold, but still held by existing customers. Under the Duty, you must ensure that these products provide fair value and good outcomes, just as is the case for open products (which are still available to new customers).
However, the Financial Conduct Authority (FCA) remains concerned over how these products are handled. The general sentiment is that closed book products are often neglected in favour of newer, actively marketed ones. This has caused many firms to lack the necessary infrastructure to treat these products with the same concern as open book products. Failure to do so, however, can result in significant compliance risks, such as fines and sanctions.
Firms need to review their closed book products to ensure they meet the standards for good outcomes under Consumer Duty. With the deadline rapidly approaching, you need to thoroughly assess whether these products still serve the best interests of your customers, and to create the necessary infrastructure to continuously measure this going forward.
Closed book products can be susceptible to becoming less advantageous for customers over time. This may be due, for example, to outdated features, higher or more complex charges, and customer disengagement. Customers may start receiving poor value from these products, at least in comparison to comparable open products. The FCA has made it clear that it expects firms to pursue readiness for the application of the rules to closed books with just as much focus as open products.
You'll be required to reassess these offerings to ensure they're still delivering good outcomes and fair value. You'll also need to set up and operate capabilities to continuously monitor closed book products’ performance in this respect.
The nature of some closed products – and greater likelihoods of lower ‘institutional memory’ and reliance on legacy systems and data capabilities – means that interpreting and applying the Consumer Duty rules to these products can be relatively complex.
Firms who don't have the framework in place to handle these products may be vulnerable to missing key information. It's essential, therefore, that your capabilities meet the FCA’s expectations.
Taking a proactive approach to handling these products effectively demonstrates your commitment to good outcomes and helps to maintain the customer base. In the long-term, you can use this information and goodwill to expand your customer base and build trust.
A thorough assessment of your closed book products will help identify any suggestion that the products don't consistently produce good outcomes and fair value, or pose potential harm. Here are some of the challenges you'll need to consider:
Impact analysis
You need to have a clear and complete list of all products and services that meet the FCA’s definition of closed. The FCA expects firms to prioritise their focus, when planning and making enhancements to their operations, on the biggest potential causes of possible harm, affecting the most customers.
Gap analysis and implementation plan
You should conduct an analysis of the extent to which you can meet all the applicable Consumer Duty rules. This includes recording your rationale in respect of those rules with which you're compliant, and the nature and extent of any gaps.
Customer journey mapping and articulations of ‘good outcome’ and ’ foreseeable harm’
As for open products, you need to have a clear map of interactions with customers throughout the life cycle of the product. At each materially important (to the customer) stage in the journey of the closed product, you should also explain what constitutes a ‘good outcome’ and ‘foreseeable harm’, and of your customers’ information and support needs, and how these will be met.
Product governance and reviews
The Consumer Duty rules require firms to measure whether closed book products continue to perform as intended and consistently generate good customer outcomes.
Fair Value Assessments (FVAs)
The FCA is supervising assertively on the Consumer Duty rules for open products, and has focused on firms’ responses to the price and value rules. It's therefore safe to assume that it will also look closely at how firms design and conduct FVAs for closed products, not least given pre-existing concerns regarding the fair treatment of longstanding customers. It's important to understand why and how the product was closed.
Taking action
If a firm identifies a potential problem with the features, benefits or value from a closed product – such that it may not be able to consistently produce good outcomes for its customers – the FCA expects it to consider and take appropriate action. For example, firms could:
It's essential that firms prioritise preparations for the application of the Consumer Duty rules to closed book products. You need to be able to demonstrate that these products provide good outcomes and fair value, and that you have the capabilities to continuously assess this. By focusing on these legacy products, you can also demonstrate a focus on good customer outcomes and foster a culture of continuous improvement.
Taking a proactive approach not only safeguards a firm’s reputation, but also reinforces the demand for transparency. Being proactive with closed book products is a crucial step to achieving long-term customer satisfaction and good practice.
For more insight and guidance, contact Supriya Manchanda.
