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Financial consumer rules set to shake up distribution and monitoring

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The UK’s new financial consumer rules will shake up the industry, forcing all financial manufacturers and distributors to consider their role in the distribution chain. The rules will also underline the growing importance of firms’ monitoring and testing tools and setting a tight deadline for upgrading them.

European regulators have been on a mission to safeguard consumer interests through product lifecycles. UK watchdog the Financial Conduct Authority (FCA) recently ramped up the pressure further by proposing a new consumer duty that aims to raise firms’ standard of care towards consumers in retail financial markets.

The rules would include an overarching conduct standard and clear expectations for firms’ cultures and behaviours. At every stage of delivery, the FCA wants all companies to put consumers at the heart of their businesses, and offer fair value, fit-for-purpose products and services. It will require firms to act in good faith; take all reasonable steps to avoid causing harm to customers; and enable customers to pursue their financial goals.

Under the proposals, FCA supervisors could increasingly challenge consumer outcomes based on these rules and expectations, and intervene robustly. Crucially, their interventions would be informed by data from firms’ own monitoring and testing activities as evidence of real consumer outcomes. These outcomes will revolve around the four pillars of communications; products and services; customer service; and price and value.

Will you be ready?

The timeline is pressing. Comments are due on the FCA’s consultation paper by 15 February 2022, and it plans to create the new rules by 31 July 2022 and enforce them by 30 April 2023. The proposed consumer duty will apply to all firms in the distribution chain that can influence material aspects of the design, target market or performance of a retail financial services product or service.

So in the next two years, financial manufacturers, distributors and sub-distributors will need to consider their role in the distribution chain and what monitoring and testing activities they will need to satisfy their regulatory obligations. They will also need to ensure careful due diligence on their customers and distributors.

Several tools will quickly become crucial including customer surveys, management information monitoring; and regular reviews and tests to hone communication. For structured product distributors, Delta Capita’s inSPire Due Diligence can help by offering a complete solution that covers know your distributor (KYD), distribution agreement drafting, know your customer (KYC) and market research services.

inSPire’s unique digital KYD service has been nominated by SRP.com survey respondents for the 2022 Best RegTech Provider. The KYD service delivers an efficient digital outreach to distributors, collating Due Diligence Questionnaires, distributor feedback and Target Market assessments. Complementing the global KYD service; inSPire has recently launched a Distribution Agreement Drafting service and KYC service that leverages the same centralized distributor outreach platform to deliver greater benefits to our community of manufacturers and distributors.

Want to know how inSPire’s complete Due Diligence solution covering KYC, KYD and Das; and how we can support information exchange between manufacturers and distributors? Speak to one of our service experts, or get in contact today.

Ophelia Hung is a Due Diligence Analyst within inSPire Due Diligence at Delta Capita. Working in Hong Kong and Japan for a number of leading banks, Ophelia gained extensive experience in a wide array Financial Services including KYC, AML and CDD. Fluent in English, Japanese and Mandarin, Ophelia is supporting and driving the growth of inSPire in APAC.

Oliver Perry is Head of Due Diligence, responsible for the design, launch, and growth of the service. Before joining Delta Capita, he was an Equity Derivatives COO in Hong Kong and London, where amongst other things, he was responsible for transforming the product approval and distribution governance frameworks before becoming Delta Capita’s Head of Due Diligence.