Consumer Duty View: FCA update - 25 January 2023

With six months to go before the Consumer Duty comes into force, the FCA has published a review of how firms are planning to implement the Duty. The review contains the key findings, together with examples of good practice, and also examples of where firms may need to improve their implementation approach.

The findings are drawn mainly from the FCA’s review of the October 2022 implementation plans from around 60 of the largest firms’ plans (being those who have dedicated supervisory teams), and it also draws from FCA discussion with other firms in the course of regular supervisory engagement (and it is fair to say that since October the plans in question have probably developed further in any event).

Our key takeaways are as follows:

• The FCA has reiterated that the FCA will be holding firms – including their senior managers and boards – accountable for delivering good outcomes for consumers. It wants to see senior leaders in firms driving the changes needed to meet the Duty standard.
• In the field of data/MI, the FCA has fired an important warning shot that firms should not assume they can “get by” by relying on or supplementing their existing data/MI and urges firms to think “deeply” and “afresh” about what data they will need to monitor and evidence outcomes.
• The FCA wants firms to ensure risk, compliance and internal audit are fully involved in implementation planning, including getting their views on timing and planning of assurance work – and note that there are references also to planned assurance work for after the implementation deadline.
• There are several mentions that firms should not be complacent and seek to rely on past improvements, initiatives or frameworks with regards to Duty compliance. This suggests that the FCA expects to see an uplift.
• Timing is, unsurprisingly, identified as a key factor in implementation challenges, in particular engagement with third parties needs to ramp up. This is something we are seeing that is already happening with our work across the industry and involvement in trade associations. The FCA is encouraging firms to take a pragmatic approach to meet the challenge of timely implementation, suggesting any further extension is unlikely. Implementing tactical fixes by the deadline and fuller strategic solutions subsequently is noted as an example of good practice.
• Whilst cultural embedding might be more of a long term change, tangible actions need to be delivered now (e.g. reviewing reward and incentive structures and performance management frameworks, SMCR uplift and training strategy).
• The most effective plans attempted to define good customer outcomes in the context of their business and considered how to deliver these through improvements to their products and services, communications and the support they provide.
• FCA confirmed that the champion role is to support the Chair and CEO in raising the Duty in all relevant discussions and to challenge the firm’s management on how it is embedding the Duty and focusing on consumer outcomes. It noted that some firms have been slow to appoint their board Champion and will soon commence working with and supporting board champions at some larger firms.
• Firms should be engaging with their service providers now to plan timing and exchange information.

Key findings

The FCA has identified three key areas where firms should particularly focus their attention during the second half of the implementation period (to 31 July 2023):

1. Prioritisation: Firms should make sure they are prioritising effectively, focusing on reducing the risk of poor consumer outcomes and assessing where they are likely to be furthest away from the requirements of the Duty.

2. Embedding the substantive requirements: The FCA urges firms to ensure they are making the changes needed and not being “over-confident that existing policies and processes will be adequate”. Firms should ensure that, when they are reviewing their products and services, communications and customer journeys, they identify and make the changes needed to meet the new standards.

3. Working with other firms: Firms need to share information with their commercial partners to make sure they are all delivering good customer outcomes. The FCA has found that some firms need to accelerate this work to implement the Duty on time.

The FCA also provided some general commentary that it welcomes firms’ efforts to respond to the Duty, and that many of the plans it reviewed shows that firms have understood and embraced the shift to focus on consumer outcomes, established extensive programmes of work to embed the Duty, and are engaging with the substantive requirements. Whilst the FCA acknowledge that its review of the high-level plans can only give a snapshot, it did note that some firms appeared to be further behind in their thinking and planning for the Duty and at risk of not being ready in time.

Next Steps

• The FCA will:

  • continue to engage with fixed firms where it has questions about their plans or approach, and to monitor their progress in embedding the Duty;
  • commence working with and supporting board champions at some larger firms;
  • soon be sending a survey to a sample of firms to understand the progress firms are making and will carry out targeted engagement with smaller firms; and
  • soon be issuing letters to firms, highlighting its key expectations on implementing the Duty and some of the key risks and consumer harms they are concerned about in certain sectors.

• Firms should:

  • review the FCA findings and develop their implementation plans and approach in line with the FCA good practice as required;
  • ensure prioritisation, making the changes needed, and engagement with other firms is reflected in their plans;
  • engage with the FCA on the various industry outreach it has planned (surveys, website updates and events, portfolio letters and supervisory engagement); and
  • for larger firms, be prepared for the FCA to reach out to provide support to the board champion.

Good Practice and Areas for Improvement

We have tabled below the Good Practice and Areas for Improvement:

Additional Support

Many firms face a challenge in coming to terms with the practicalities of effectively implementing this new Consumer Duty. We’re here to help you demystify it.

Our new menu of services to support clients with their implementation focuses on many of the areas outlined by the FCA in their review. Examples include a comprehensive Data & MI template for ongoing board reporting, a briefing guide for the Consumer Duty Champion (CDC) outlining key roles and responsibilities and a range of other documents, trainings and templates that can be purchased off the shelf or tailored to your specific organisational requirements.

For more information see our Consumer Duty Feature page, or register your interest here.