Insights
The FCA knows its own rules.
Show it your Consumer Duty framework.
An application for FCA authorisation is not the place to reproduce the Consumer Duty rules and guidance. The FCA already knows what its rules say. What it needs to understand is how your firm will apply them.
The Consumer Duty is an outcomes-based regime. Firms have flexibility to design their own approach, but that flexibility comes with a responsibility to develop a framework that reflects their actual products, customers and business model.
A policy promising to “deliver good customer outcomes” is not, by itself, evidence of how those outcomes will be achieved.
In practice, an applicant should be ready to submit firm-specific documentation covering:
- Target market identification and analysis.
- Product and service governance.
- Fair value assessment.
- Customer understanding assessment and testing.
- Customer support monitoring, including supporting management information (MI).
- Customer outcomes monitoring.
- Root cause analysis and remediation.
These should be working frameworks, supported by actual assessments, decisions and evidence, rather than statements of future intention.
What does that look like in practice?
Take a firm applying for Part 4A permission to offer consumer car finance.
Rather than stating that it will identify its target market, the application should identify that market and explain why the product is suitable for it.
For example, the firm might identify its target market as established adults in stable employment, earning above a specified income threshold, with sufficient disposable income to meet repayments comfortably.
It might also explain why it does not intend to target university students, young adults without a regular income or people in temporary employment whose financial circumstances may make the product unsuitable. These distinctions should be supported by affordability analysis and evidence of potential harm, rather than assumptions about age or occupation alone.
The same applies to distribution.
Rather than promising to develop a distribution strategy, the applicant should explain how it intends to reach its target customers. For example, it might partner with car dealerships to offer finance to customers who are actively looking to purchase a vehicle.
It might also confirm that it has no intention of setting up a stand at a university and persuading students to take out enormous car loans while they're simply trying to get to their next lecture.
A distribution strategy should explain not only how a firm intends to reach its target market, but also how it will avoid reaching customers for whom the product may be unsuitable.