PRIN 2A.7 Consumer Duty Standards
PRIN 2A.7 outlines the rules which establish a clear benchmark: firms must act as a prudent company would when offering the same products to retail customers. This means considering customer needs, product complexity, and potential risks to ensure fair treatment and good outcomes for consumers.
Expected Standards Under Principle 12 and PRIN 2A
Rule PRIN 2A.7.1
When interpreting Principle 12 and PRIN 2A obligations, firms must meet the standard expected of a prudent company that:
- Carries out the same business activities with the same products
- Properly considers the needs and characteristics of retail customers, whether looking at the target market as a whole or individual customers
What Makes a Standard “Reasonable”
Rule PRIN 2A.7.2
What counts as reasonable behavior depends on all relevant circumstances, particularly:
Product Characteristics
The nature of the product being offered, especially:
Risk Level: Higher-risk products require extra care to ensure they meet customer needs and are properly targeted. If a product could cause significant harm, firms must take additional precautions.
Complexity: Complex products need more attention because customers may struggle to understand their features, value, or suitability. This includes:
- Long-term products with unpredictable outcomes
- Non-standard charging structures
- Features that are difficult for customers to understand
Costs and Charges: All fees, costs, and charges associated with the product must be considered.
Value Assessment: Firms must evaluate both the overall utility of the product and the value of specific features or services, especially those subject to separate charges.
Customer Characteristics
The specific traits of retail customers, including anything the firm knows or should reasonably know about them:
Customer Expectations: What customers reasonably expect from the product
Customer Circumstances: Their financial resources, level of financial knowledge, sophistication, vulnerability characteristics, and corporate structure (where relevant)
The Firm’s Role
How the firm relates to the product and customer:
Customer Relationship: The firm’s existing relationship with the customer. Note that acting reasonably doesn’t require becoming a fiduciary or providing advisory services where none existed before.
Advice Provision: Whether the firm provides or will provide advice affects what’s considered reasonable behavior.
Distribution Role: The firm’s position in the product distribution chain, particularly how much it influences customer outcomes.
Relationship Stage: Different stages of the customer relationship may require different levels of care. Customers are particularly vulnerable during certain times (such as falling into arrears or making long-term investment decisions), requiring firms to take greater action.
Going Beyond Single Solutions
Rule PRIN 2A.7.3
Acting like a prudent firm means more than just finding one reasonable solution. Firms must:
- Consider whether their preferred approach delivers good outcomes for all affected retail customers, not just some
- If it only works for some customers, understand why it fails others
- Identify additional actions to help those who might be negatively affected
Protected Characteristics and Vulnerability
Rule PRIN 2A.7.4
When considering customer needs and characteristics, firms should:
- Target Market Vulnerability: Pay proper attention to vulnerability characteristics that exist in their target market and understand the scale of these issues
- Impact Assessment: Consider how vulnerability characteristics affect customer needs within their target market
- Individual Customer Care: When dealing with specific customers, properly consider their individual needs and vulnerability characteristics
- Staff Training: Help frontline staff recognize signs of vulnerability and, where appropriate, gather information from vulnerable customers to better meet their needs
- System Design: Create systems and processes that encourage and enable vulnerable customers to share information about their needs
Awareness of Protected Characteristics
Rule PRIN 2A.7.5
Firms must understand that:
- Overlapping Vulnerabilities: Certain groups with protected characteristics (such as older customers) may be more likely to have vulnerability characteristics. Health-related vulnerabilities often overlap with disability protections under the Equality Act 2010. Firms should consider both Consumer Duty compliance and equality law obligations.
- Ongoing Monitoring: Firms should stay informed about emerging evidence showing that customers with specific protected characteristics are more likely to be vulnerable, and factor this evidence into their compliance approach for both Consumer Duty and equality legislation.