Ongoing requirements for closed book products
Complying with the Consumer Duty rules for closed products may be an even greater challenge than for open products.
The FCA has made clear that it expects firms to pursue readiness for the application of the rules to closed books with just as much focus and rigour as for open products. It is critical that firms invest the time and resources to get this right.
Here's what firms should be thinking about doing now in respect of closed book products:
Impact analysis
An essential starting point is to have a clear and complete list of all products and services that meet the FCA’s definition of closed, and to formalise with rationale which rules apply to them. 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
Just as they did for open products and services, firms should conduct an analysis of the extent to which they can meet all the applicable Consumer Duty rules, recording their rationale in respect of those rules with which they are compliant, and the nature and extent of any gaps.
Programme management
To the extent proportionate and appropriate for an individual firm, firms should set up and operate a programme to facilitate and oversee the activities in the implementation plan for the closed book deadline. The goal should be to extend or amend the infrastructure – including policies, procedures, and risk management and oversight arrangements – created for the open products deadline, to closed products, as appropriate.
Product governance and reviews
Although the products are already held by customers and closed to new business, the Consumer Duty rules nevertheless require firms to measure whether they continue to perform as intended and consistently generate good customer outcomes. This is likely to entail the extension of enhancements to product review arrangements made for open products to closed products, with suitable adjustments to consider issues specific to closed products.
FVAs
The FCA is already supervising assertively regarding the Consumer Duty rules for open products and has focused on firms’ responses to the price and value rules. This is not surprising, given that the requirement to conduct FVAs was new for much of the financial services industry, and the FCA’s concern that those firms – general insurers and some asset managers – to whom similar requirements (in the PROD and COLL sourcebooks) already applied were not necessarily meeting the regulator’s expectations. (Firms that meet the value rules in PROD 4 for non‑investment insurance or COLL 6.6, COLL 8.5 or COLL 15.7 for asset management will meet the price and value outcome).
