The FCA’s new Consumer Principle, which came into effect on 31 July 2023, seeks to ensure regulated firms deliver good outcomes for retail customers.
The four outcomes the FCA is focused on are:
- products and services
- price and value
- consumer understanding
- consumer support
The obligation on firms to deliver these four outcomes is supported by three cross-cutting rules namely:
–act in good faith
–avoid causing foreseeable harm
–enable and support retail customers to pursue their financial objectives
Is HSBC Global Asset Management (UK) Limited (‘HSBC’) captured by the new Consumer Duty Regulation?
Yes, as a UK regulated firm managing products which are sold to UK retail customers HSBC is captured by the Duty and expects to be compliant with the requirements ahead of 31st July 2023.
How will HSBC deliver the FCA’s new Consumer Duty outcomes?
As a customer centric firm, HSBC already adheres to a number of the requirements of an asset manager under Consumer Duty. Many of our existing processes are aligned to the standards the FCA expects. However, we are making some changes to enhance the service we provide to retail customers, and other firms in the distribution chain, in line with the guidance provided by the FCA.
These are summarised below under each of the four Consumer Duty outcomes.
Products and Services
Firms should ensure that products are designed to meet the needs, characteristics and objectives of a target group of customers and are distributed appropriately.
HSBC’s established product review process supports the requirement to ensure that products and services are well designed to meet the needs of consumers in the target market.
However, to ensure we are meeting the ‘Product & Services’ outcome of the Consumer Duty our Product Review templates have been updated to ensure the reviews we carry out are as robust as they can be.
We have carried out extensive product reviews on all in scope products in preparation for the Duty and no issues have been identified that would impact the distribution of our products to their intended target market.
We will continue to publish target market information, including recommended knowledge and experience, ability to bear losses and risk tolerances on the European MIFID Template (EMT v 4.1). A link to our EMT v 4.1 is provided below.
As we do not generally interact directly with the end consumer for business introduced via a Fund Platform or Supermarket, we rely on our sub distributors to interact with consumers on our behalf. We’ve therefore carried out a full review of our sub distribution network and due diligence documentation has been refreshed where required to meet the standards expected by the FCA.
Although industry standards are still being defined with regard to the ‘feedback loop’, we have initiated a process to ensure we receive information from our sub distribution network to meet the requirements of the Duty. We expect sub distributors to provide regular MI including but not limited to details of complaints, instances of negative target market sales, marketing issues and any instances where issues of vulnerability have been identified that may require action from us.
Price and Value
Following the implementation of the Consumer Duty, the assessment of whether the price of a product or service provides for a fair value must consider at least the following factors: the nature of the product or service; any limitations that form part of a given product or service; the price consumers will pay; as well any characteristics of vulnerability amongst the targeted audience.
Our UK domiciled Funds already undergo an annual Assessment of Value (AoV) in line with UK regulation. We publish extensive information online on the following link - Assessment of Value Report (hsbc.co.uk). We will continue to perform an annual AoV on our UK domiciled Funds, the results of which will be published in the AoV report each year and on the EMT v 4.1.
To comply with the Consumer Duty regulation a Fair Value Assessment of our Global Funds has also been carried out where the Fund is distributed in the UK. The purpose of the assessment was to determine whether a global product or service is delivering a fair value to retail customers in a similar way to the AoV for UK domiciled Funds. This is an ongoing review. We will assess the value each of our products delivers at least annually.
The initial assessment consisted of a review of various factors including quality of service, performance and costs as well as considering the nature of the product or service, any limitations that form part of a given product or service and the price consumers will pay.
The outcomes of our value assessment for our Global Funds are published in the EMT v 4.1. A link is provided below.
Are HSBC Global MPS Products also assessed in the same way?
Yes, our MPS Portfolios are within scope of the duty and have been assessed using the same criteria.
However, due to the nature of the product the data is not published within the EMT.
Fair Value Assessment outcomes and details of the intended target market for our MPS portfolios (387KB, PDF) can be located here .
Firms’ communications must support consumers and enable them to make informed decisions about financial products and services. To achieve this, communications must be tailored according to the characteristics of the intended audience, the complexity of the product, the communication channel used, and the role of the firm; be communicated to retail customers in a way that is clear, fair and not misleading; and provide information to retail customers that is accurate, relevant; and on a timely basis.
We have undertaken a full review of our marketing materials and communication templates to ensure compliance with the new Consumer Duty rules
A number of our client facing documents have also been reviewed by external vendors who specialise in obtaining feedback from potential investors across all areas of our intended target market to ensure that they are understood.
Where we feel changes are required, these have been identified and implemented. We will ensure ongoing alignment with the Consumer Understanding principle and will continue to seek feedback where possible to ensure our communications are as clear as possible.
Firms will be required to provide a level of support that meets consumers’ needs throughout their relationship with the firm. Firms must not disadvantage retail customers, including those in vulnerable circumstances; must ensure customers can use products as reasonably anticipated; and ensure that consumers do not face unreasonable barriers (including unreasonable costs) when pursuing their financial objectives.
Although HSBC has limited direct contact with the end consumer, we understand the need to ensure the support provided to consumers via our vendors or sub distributors is designed to meet the needs of all customers.
We are working with our Transfer Agents who will typically interact with our direct customers on our behalf with the aim of ensuring they have defined training and procedures for handling retail client enquiries and particularly in cases where the client displays characteristics of vulnerability – covering a range of disabilities, as well as situational vulnerability e.g. understanding our requirements, product specifics and exceptional servicing requests such as probate assistance and power of attorney.
We are also working with our sub distributors and expect to receive enhanced information from them across a number of topics on a regular basis via the previously mentioned distribution feedback loop.
Finally, we’ve established an internal Consumer Duty & Client Sentiment Forum. The Forum will meet quarterly to review MI from our sub distributors and vendors, trend analysis of complaints, upcoming fund events and client communications through a Consumer duty lens. The Forum will present updates to senior management on a regular basis.
HSBC expects to fully comply with the Consumer Duty rules. We have made some enhancements to deliver the outcomes required by the duty including but not limited to:
- Carried out Fair value assessments on all products distributed to retail investors in the UK
- Updated our Product Review templates
- Enhanced the level of information being received from our sub distribution network
- Carried out reviews to ensure customers communications are clear and not misleading
- Enhanced the processes in place with our vendors who may interact with customers on our behalf
- Established an internal Consumer Duty & Client Sentiment Forum and Consumer Duty Champion
Should you have any questions regarding Consumer Duty and the work that we have undertaken to deliver the outcomes please do not hesitate to contact your Relationship Manager.
EMT v 4.1 (XLS, 833KB)
MPS Product Target Market and Value Assessment (PDF, 387KB)