The FCA’s Consumer Duty: What should firms be doing now?
The FCA has recently confirmed its approach to the Consumer Duty, with most firms having to implement the new requirements by 31 July 2023.
The FCA has acknowledged that this sets a challenging timescale for firms to embed the Consumer Duty properly – firms only have a year to understand the required changes, review existing practices and implement new systems, controls, policies and procedures where required.
What are the new Consumer Duty requirements?
In its Press Release, the FCA sums up the requirements as follows:
“The Duty will include requirements for firms to:
- end rip-off charges and fees
- make it as easy to switch or cancel products as it was to take them out in the first place
- provide helpful and accessible customer support, not making people wait so long for an answer that they give up
- provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read
- provide products and services that are right for their customers
- focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction.”
This is an important indication of the breadth of the Consumer Duty, but there is so much more to do in practice.
What does my firm need to do?
Your firm’s Board is expected to have agreed an implementation plan before the end of October. This means that the Board should ideally meet twice before that date to discuss and agree the plan.
Whilst there are too many issues to address and list here, some of the key areas that you should be reviewing as part of the implementation plan include:
1. Culture and Strategy
Can management demonstrate that the customer is truly at the heart of the culture and strategy of the firm? How is this demonstrated? A major outcome of the Consumer Duty is that firms should act in good faith toward their customers. How can your firm demonstrate that this is reflected in not only its Code of Conduct, but also in its behaviour towards its customers?
2. Senior Management Responsibility
The FCA has made it clear that the Consumer Duty will require a significant shift in both culture and behaviour by many firms. Its proposals require a Champion of the Consumer Duty at Board level and for the Board to review and approve annually the firm’s monitoring and actions. This must be written into Board procedures and the Statements of Responsibility for all relevant SMFs.
3. Customers
The Consumer Duty relates to retail customers, which is a wider definition than just “consumers”. It includes SMEs, for example, and can even include local authorities in certain circumstances.
4. Distribution Chains
The existing product governance requirements have taught firms to consider the distribution chain, where firms distribute investment products which are ultimately marketed to retail clients. Firms should comprehensively review their product governance policies and procedures to reflect the new requirements.
5. Risk Assessment
Firms are used to the idea of a conduct risk assessment, whereby the risk of customer detriment is assessed throughout the firm’s operations. This should be reviewed, particularly in light of the FCA’s required outcomes relating to products and services, price and value, consumer understanding and consumer support.
6. Product Design
Review and update your firm’s Product Design and New Product Approval Processes to demonstrate that products and transactions are designed with the customer in mind and that they exist to enable customers to pursue their financial objectives.
7. Financial Promotions Strategy
The FCA has made clear its desired outcome that communications should equip consumers to make effective, timely and properly informed decisions about financial products and services. Review not only the content of your firm's financial promotions, but the whole strategy for communicating to both new and existing customers, including approval of financial promotions. This should take into account the requirements of the FCA's recently published statement on financial promotions, especially for higher-risk investments
8. Vulnerable Customers
The FCA has conducted a considerable amount of work, requiring firms to consider the vulnerabilities of their customers, how to identify such vulnerabilities and how to achieve positive customer outcomes in these circumstances. This becomes even more important as part of the Consumer Duty and firms are well advised to conduct a thorough review of their current approach to treating vulnerable customers fairly.
9. Redress
Customer complaints remain a significant form of intelligence for both a firm and the FCA on poor customer outcomes. A good complaints process should not only identify areas of potential detriment, but also deliver positive solutions for customers and identify areas for remediation. Review the complaints process in light of the new requirements.
If any senior managers believe that the Consumer Duty is simply a rehash of MiFID product governance requirements, TCF and conduct risk, they are in danger of complacency.
The FCA is representing Consumer Duty as a key pillar of its recently published three-year strategy. It will expect firms not only to strive for the right outcomes, but will expect to see evidence of such outcomes as part of its aim to become a more credible and assertive regulator.
More on the Consumer Duty
Are you responsible for the implementation plan, training, controls, policies or procedures relating to the Consumer Duty?
Visit our dedicated page on the new Consumer Duty here.
About the Author
Peter has over 35 years’ experience in the field of regulation and compliance. A chartered accountant, Peter spent 6 years working with the UK’s SFA (now the FCA) and has headed up regional and global compliance functions at Paribas, UBS Investment Bank and Bank of America.
Since 2006, Peter has specialised in training, focusing on boards, senior management and assisting the next generation of compliance officers. His coverage includes most areas of compliance and financial crime, also corporate governance and risk management. His style is inclusive, interactive and based on practicalities, not just rules.
