Managing my financial journey
Managing my financial journey

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The ‘conduct risk’ review

A further related development has been the ‘conduct risk’ review that the FSA started to roll out in 2010 (FSA, 2011b, c). This is a development that has been built upon the FSA’s Treating Customers Fairly (TCF) framework. TCF set out the key expectations for the way a firm that sells products goes about its business – including identification of a customer’s needs, provision of information about products – and, where needed, advice – plus the setting out of details of the performance history of the product being sold.

The Conduct Risk strategy, now being taken forward by the FCA, takes the principles of TCF further. It involves:

  • intensive supervision to ensure that firms are treating customers fairly
  • an increased focus on the identification and mitigation of risks before customers suffer adverse outcomes; this interventionist approach is aimed at anticipating detrimental outcomes for customers and to intervene before they occur, which is likely to include interventions such as banning products or prohibiting the sale of certain products to specific groups of customers
  • the testing of product design and product governance arrangements

A particular feature of the new approach is the marked focus on product governance. This is aimed at ensuring that customer care is embedded into the decision making processes of financial firms right up to board level. This approach involves the scrutinising of the whole of the product life cycle from start to finish rather than just focusing on rules and procedures that apply at the point of sale. The FCA’s view is that firms can do much more to protect consumers when designing products and that this would lead to an improvement in product distribution standards.

It is therefore clear that the FCA will take a tough line where it finds poor outcomes from its supervisory reviews of firms. Specific actions are likely to include product bans, price interventions, consumer warnings and further competence requirements for firms. Clearly there will be reputational and commercial impacts on those firms if such actions are invoked against them.

A further tightening-up of sales regulations came in 2013, with the introduction of the requirement for investment advisers to hold a Statement of Professional Standing (SPS). The statement is intended to provide customers with evidence that their advisers subscribe to a code of business ethics, are qualified and have kept their market knowledge up to date.

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