BikeBiz Bicycle and cycling retail news
The Bicycle Association has obtained new guidance from the Financial Conduct Authority (FCA) on the potential impact of the ‘Consumer Duty‘ on the Government’s Cycle to Work (C2W) tax break scheme.
The Consumer Duty, overseen by the Financial Conduct Authority (FCA), came into force in July 2023, and differing interpretations of its potential impact on the operation of the Cycle to Work (C2W) scheme raised industry concerns.
In response, the BA sought clarification from the FCA on the issues raised by industry participants and where interpretations of Consumer Duty responsibilities differ.
The FCA has now produced a letter in response to these queries which can be read in full below:
In July 2022 we published final rules and guidance on the Consumer Duty. Firms are responsible for understanding their regulatory obligations and implementing them in the context of their business.
We set out the following timeline for firms to implement the Duty:
- The Duty came into force on July 31, 2023, for new and existing products or services that were open to sale or renewal
- On July 31, 2024, the Duty will come into force for closed products or services
We have published a wide variety of additional resources to help firms understand their obligations under the Duty and we wrote directly to all firms subject to the Duty in early 2023, with a tailored letter setting out how it applies to firms in different sectors. In the letter we were clear that firms need to understand their role in the distribution chain in order to meet their commitments under the Duty.
How the Duty applies along the Cycle to Work distribution chain
The Consumer Duty applies to the regulated and ancillary activities of all FCA authorised firms that are carried out with respect to retail customers. It applies across the distribution chain to all firms that have a material influence over, or determine, retail customer outcomes. Each firm has a responsibility commensurate to its role in the distribution chain and the extent to which the firm is in practice exercising discretion over consumer outcomes.
This means that firms must consider the specific nature of their distribution chain to determine their influence over consumer outcomes and their responsibilities under the Duty.
When a bike is made available to a consumer under the Cycle to Work Scheme, they enter into a consumer hire agreement with the owner of the bike, usually their employer or a third-party scheme provider. Entering into a consumer hire agreement is a regulated activity.
The owner of the bike may need FCA authorisation. There is an exemption from needing authorisation where the owner is the employer and the total value of the goods being hired does not exceed £1,000. For more information on this see the Department for Transport Guidance for Employers on the Cycle to Work Scheme.
Where the owner of the bike is an FCA authorised firm it must comply with all relevant regulation, including the Consumer Duty and the Consumer Credit Act.
The role of bike shops
Under the Cycle to Work scheme, bike shops supply bikes to employers or scheme operators, that are then hired to end consumers.
In this scenario, where a bike shop is an FCA authorised firm, it is likely to be carrying out an ancillary activity and is subject to the Consumer Duty. An ancillary activity is an unregulated activity that is carried out in connection with, or held out for the purposes of, a regulated activity. In this scenario the unregulated activity of the bike shop is carried out in connection with a regulated consumer hire agreement. For more information about ancillary activity see 2.41-2.44 of FG22/5.
Bike shops subject to the Duty must carefully consider their obligations, including the cross-cutting rules and the Price and Value outcome, where they are also considered ‘distributors’ or ‘manufacturers’ under the Duty. The Duty does not prohibit the payment of commission or the addition of charges to consumers.
The Price and Value outcome requires firms working along distribution chains to ensure that the price a consumer pays for a product or service is reasonable, compared to the overall benefits they receive. All firms along the chain have a responsibility to ensure that the costs they introduce do not undermine the value consumers receive. See Chapter 7 of FG22/5 for more detail on the Price and Value outcome.
Where a bike shop is not an FCA authorised firm, it cannot be subject to the Consumer Duty. In this scenario, FCA authorised firms in the distribution chain will be responsible for acting to deliver good outcomes in line with the Duty and ensuring that consumers receive fair value, including by considering additional costs imposed by other parties in the distribution chain.
Resolving issues along the distribution chain
It’s essential that all firms along the distribution chain are working together, with the shared goal of delivering good outcomes for consumers.
Where firms disagree about the best way to deliver good outcomes, in the first instance we would expect them to raise these concerns with other relevant parties in the distribution chain and resolve the issue. It must also notify us where it becomes aware that another firm in the distribution chain may not be complying with the Duty.
For more information, visit: www.bicycleassociation.org.uk
