Skilled Person
Lot D – Conduct of Business
Every firm is different, meaning your conduct risks and how you manage them are specific to what you do and how you do it.
The conduct lot by its very nature spans a broad range of regulatory rule books and guidance. Yet, in its simplest form, is broadly defined as any action taken by a regulated firm or individual that leads to customer detriment or has an adverse effect of on market stability.
The regulator will focus on the design and effectiveness of your systems and controls framework relative to the area of harm they have identified. This could be any part of your business model from design, distribution, and marketing through to quality of sales practices, advice and collections and arrears handling.
This lot is closely aligned to the impending Consumer Duty rules, under which the FCA are seeking to drive consistently high consumer protection standards across the firms it regulates.
“We are committed to reducing harm in the markets we regulate. Our analysis of markets ensures that we do this effectively, helping us to decide where to focus our attention. We expect firms to be similarly focused on preventing harm and assisting us where they can, and we will continue to actively supervise all firms to ensure they achieve this.”
— Christopher Woolard, Executive Director of Strategy and Competition, FCA
Considerations for firms
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Responsible lending
The design and application of your credit and affordability framework continue to be a top priority for the FCA. They will be looking to determine how you have interpreted relevant rules and guidance when designing your policy and procedures. Similarly, they are likely to focus on the controls you have put in place to ensure they are effectively embedded into your business.
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Fair value
Product design processes are required to ensure the arrangements you have in place deliver products that meet customers’ needs at a suitable quality and price. We have seen firms struggle with the requirement to consider value of a product not only for the initial term but also for renewals for a "reasonably foreseeable" period. The Regulator is looking to establish if there is consistent consideration of customer outcomes that are bespoke to the product under review. This may consider the extent to which the supporting sales and service process is digital and the inherent customer risks this poses.
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Sales process and quality of advice
The Regulator is keen to understand the nature of your sales processes relative to your market and target customer. They will be looking to understand whether you have built in sufficient controls to prevent customers from harm. If you provide advice, they will focus on how you demonstrate and ensure suitability of sales.
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Vulnerability
The identification and treatment of vulnerable customers remains a priority issue. The expectation is that vulnerable customers should experience outcomes as good as those for other consumers. You should be able to demonstrate how your business model; culture and processes and procedures ensure the fair treatment of all customers.
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Outsourcing
The quality and appropriateness of your outsourcing arrangements can influence your operational resilience. The regulator will be interested in the arrangements you have in place and how you ensure effective oversight. They will often be looking to assess how accountability and responsibility for the services being provided are designed and documented, and the extent to which relevant risks have been identified and mitgated.
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Third parties and distributors
The regulator is focused on Firms acting as Principle with appointed representatives or introducers, and those with delegated authority arrangements. As this type of arrangement can carry a greater risk of customer and market harm. They will be focused on the understanding of responsibilities between parties and the adequacy of arrangements, including due diligence, agreements of standards, quality of polices and oversight.