31 July 2023 sees the implementation date for all of the FCA's Consumer Duty rules for current products and services. Firms may feel they've been preparing for this day for years, but there's no time to relax. FCA will look at all interactions with retail customers through a Consumer Duty lens, and firms will be anxious to see how their carefully planned programmes measure up to regulatory expectation.
Reminder: what's it all about?
The Consumer Duty builds on long-established regulatory principles and requirements on fair treatment of customers and has introduced a new FCA Principle, Principle 12, which requires all firms to "act to deliver good outcomes for retail consumers". The new Principle is backed up by cross-cutting rules and four outcomes FCA wants to see, relating to products and services, price and value, consumer understanding and consumer support. Essentially, looking at everything firms do that affect retail customers first and foremost from the point of view of the outcome for that customer.
Since FCA published its final rules and guidance on the Duty in July 2022, it has constantly reminded firms of its expectation, and backed up the rules and guidance with a series of both general and sector focussed letters, webinars, reviews and checklists.
What should firms have done?
Firms should have spent the past year assessing the impact of the Duty on their business. They should have ensured their boards understand the importance and requirements of the Duty, allocated appropriate responsibilities, considered the application of the Duty to each of their products and service lines and addressed the distribution chain.
They should have stress tested each element of the customer journey, pre-, during and post-sale, looking at any barriers that consumers could face regardless of the method or medium they choose for their journey and as ever with a particular regard to vulnerable customers.
They should be clear that every firm in the distribution chain has its place and that all relevant firms will work together to ensure the outcomes are met.
They should have assessed the role and responsibilities of all relevant staff – which is far from only customer-facing staff and the compliance function, and put in place policies and training to ensure staff know what is expected of them.
And, critically for the future, they should have in place a suitable monitoring programme, with plans for remediation if the results of the monitoring mean there's room for improvement.
What can we expect from FCA?
It would be unrealistic of FCA to expect all firms to have got implementation perfectly right and in time. We can expect that it will keep a close eye on implementation and ongoing compliance, but we can also expect that where it takes action, it will focus on serious breaches and cases where it sees the most evidence of harm or risk of harm to consumers.
FCA has published a lot of information in the run-up to implementation, which firms can still use to check their policies and ongoing compliance. In the meantime, the key questions that FCA published at the end of June can form a useful checklist of questions firms might expect FCA to pose as it starts to monitor compliance. The questions focus on:
- Characteristics of products and services:
- Are they well designed to meet the needs of customers in their target markets?
- Are they designed to perform as expected?
- What testing have firms carried out?
- Do they have any features that could cause harm to vulnerable customers? If so, what changes are needed and have they been made?
- Firms should have carried out fair value assessments – what action have they taken following them?
- How are firms ensuring this action is effective in improving consumer outcomes?
- Communications and support:
- How are firms testing the effectiveness of their communications and acting on the results of the tests?
- How are firms adapting their communications to help vulnerable customers, and how are they testing the effectiveness of the adaptations?
- Have firms assessed how their customer support meets the needs of customers with vulnerability characteristics?
- How have firms satisfied themselves that their post-sale support is as good as their pre-sale support?
- Staff and training:
- Have firms ensured that all individuals throughout the firm understand their role and responsibility in delivering the Duty – including those in control and support functions?
- Risk assessment:
- Have firms identified the key risks to their ability to deliver good customer outcomes?
- Have firms put in place appropriate mitigants?
- Monitoring and MI
- What data, MI and other intelligence are firms using to monitor fair value on an ongoing basis?
- What data, MI and customer feedback are firms using to support their assessments of the effectiveness of customer support to vulnerable customers?
The Consumer Duty is FCA's flagship initiative in its bid to change the culture within firms. The results of its latest "Financial Lives" survey show that consumer confidence in the industry is generally low, and that firms need to work on regaining trust. Carefully planned and properly monitored Consumer Duty programmes can help with this. And not every firm is going to have everything right from day one, which is why it's so important that firms take care with getting the right levels of MI and monitoring information, presented in the right way, which will enable them to take appropriate remedial measures if things aren't quite working as planned.
Make sure you keep up to date with FIN. for regulatory updates on the Duty in practice.