After its damning January review, the UK’s Financial Conduct Authority (FCA) has delivered a series of ‘Dear CEO’ letters to members of the consumer-facing financial industry in preparation for the arrival of the highly-anticipated Consumer Duty.
As the whole world awaits the arrival of the FCA’s consumer duty, the regulator’s recent correspondence with industry executives confirms its backing for the STAR initiative.
In essence, the consumer duty rules set out by the UK financial watchdog will introduce an entirely new set of conduct regulations aimed at protecting retail consumers. Specifically, it outlines a better, more transparent relationship between financial service providers and consumers and pioneers a more appropriate use of service via the ‘consumer-first’ approach.
The regulation, which is anticipated as ‘the most significant regulatory and cultural shift’ to emerge in recent years, is set to arrive on 31 July 2023, yet according to the FCA’s recent January review, firms are seriously lacking in their preparations for its implementation.
For this reason, the regulator recently issued a series of ‘Dear CEO’ letters to various industries expectant of the Consumer Duty’s arrival. These letters specifically outline the FCA’s expectations of firms regarding their preparations and implementation of the regulation.
Its letter to the consumer investment sector reads:
“More needs to be done to speed up transfers between investment platforms…and we expect firms to do more to reduce platform switching times. The Duty guidance states ‘firms should make it easy to switch products, leave their service or make a change, as it is to buy the product or service in the first place’.”
The letter continues: “We continue to support the efforts of STAR, and we will continue to take action where we see firms falling below the standards we would expect.”
As the FCA continues its efforts to ensure compliance with the regulation, its mention of the STAR transfers initiative here is key.
In January 2019, the not-for-profit think tank Criterion and the electronic transfer facilitator TeX launched the initiative with backing from both regulators and the UK government.
STAR promotes the good practice of transfers among platforms, insurers, fund managers, re-registration and transfer intermediaries, custodians, third-party administrators and trustees. For this reason, the FCA cites the improvement of transfers and transfer times as of high importance to the success of the consumer duty.
On this matter, the FCA’s executive director for consumers and competition, Sheldon Mills, previously said in 2021: “Improving transfer times is critical in improving consumers’ ability to shop around and switch to a platform that better meets their needs;” elements of which now echo throughout the regulator’s more recent correspondence with the consumer investment sector.
A future of consumer duty
STAR seeks to help companies evidence their support for the new consumer duty rules by means of accreditation; thus fully demonstrating a commitment to achieving more timely transfers and adhering to the FCA’s vision for better consumer outcomes.
The transfers initiative delivered its first accreditations in November 2022. The figures of the time indicate that 18 out of the 76 firms that joined the initiative received accreditation.
STAR assesses the speed of transfers, communication methods and the percentage of electronic transfers reported in its accreditation process, and as the FCA confirms its support of this process, initiatives like STAR could help prepare firms for a future of consumer duty.