Closed Products and Services and the Consumer Duty

The 31st July deadline for the application of the Consumer Duty to closed products and services is fast approaching, and firms should be able to demonstrate that they have reviewed and, where appropriate, taken action in respect of these.

With an increasing amount of consolidation and acquisition activity taking place in the industry, it is important to recognise that the Duty does not apply to past actions of firms, but does apply to ongoing actions regarding closed products and services and that, going forward, largely similar duties will apply to these as to open products and services, and that current, comprehensive and accurate client data is going to be paramount in meeting the Duties.

As, by definition, these are no longer open to further sale/distribution, the Regulator has indicated that there is no requirement to have a target market or distribution strategy for these.? However, as many firms will have defined and implemented target markets as a way of managing the relevance of a given product or service clients for clients within one or more Target markets, it could be argued that this is still a valid and effective way to monitor ensure ongoing suitability, not least because it provides staff with a consistent way of managing both open and closed products, thereby minimising risk.

This will be particularly effective as part of the client review process, where clients may be added to or removed from a Target market, for example as their circumstances change.

Other aspects of the Consumer Duty apply equally to both open and closed products and?services, and it is therefore important that firms have mechanisms in place to review these, both as part of their initial assessment pre-July 31st and on an ongoing basis.? However, in some cases, this will be complicated due to gaps in customer data.

These may have arisen due to different historic standards for data capture, particularly in respect of acquired client banks; a less than comprehensive data migration from legacy systems; or simply poor historic record-keeping standards and in such cases, firms must take steps to identify and mitigate such issues.? The first step must clearly be to identify such gaps in data and firms may well find trends and themes occurring consistently, which may suggest specific remedial actions that can be applied to address these issues.? This highlights the importance of being able to interrogate and analyse data in a consistent manner, whether within the firm’s existing client management system or, where necessary, by utilising external tools.? This should then of course form part of ongoing management of data quality, and be embedded in business processes to prevent future issues.

Once gaps are identified, action should be taken to update and cleanse this data, which may include using external sources of data in addition to client engagement, although the latter may prove difficult where the client has disengaged from the business. In this case, consideration should be given to the most appropriate way of reengaging with these clients, with due consideration to the Customer Support and Understanding outcomes of the Duty and, where the client is paying for ongoing service, reviewing whether they are indeed receiving that service.?

This latter point also interacts with the Price and Fair Value outcome, as it will be important to ensure that closed Products and services continue to offer value to customers, but where there are gaps in customer data, or where the client has disengaged to whatever extent, this can represent a significant challenge to ensure that this is the case.? This can be particularly important where changes in client circumstances, including Target market inclusion, cannot be easily identified.

Finally, consideration must be given to the fact that customers may exhibit characteristics of vulnerability, which may impact disproportionately on the continued suitability of closed products and services and which may lead to poor outcomes. Gaps in client data may mean that these vulnerabilities have not been identified, either due to not previously having been considered, or having arisen since the last client engagement.? This means that ensuring – and documenting – that this has been considered is of critical importance.

Although the implementation of Consumer Duty can represent a significant additional workload for firms in the shorter term, improving client engagement and quality of data, leading to better outcomes can only benefit firms, in terms of improved client retention, acquisition of new clients aligned with the firm’s target markets and streamlining of advice processes.