FCA Consumer Duty - Next Steps
Overview
By 31st July 2023 firms within the financial service industry must comply with the Consumer Duty standards. The Duty sets a high expectation for the standard of care that firms give retail customers, and for many firms, this may require a shift in both culture and behaviour. Wholesale firms are required to assess whether they, at any point in the distribution chain, have a role that could be regarded as determining or materially influencing the outcomes of retail consumers.
It is important that firms do not regard 31st July as singular compliance deadline since the FCA has emphasised the importance of ongoing monitoring to provide continual assurance that good outcomes are being achieved. Furthermore, the data used to satisfy evidencing requirements can support longer term commercial opportunities through improving understanding of clients and enhancing the services provided to them.
New Link Consulting specialises in helping financial services firms to respond effectively and pragmatically to regulatory change. Our senior regulatory and compliance team have conducted ‘Skilled Person’ reviews, on behalf of the FCA/PRA, into a wide range of conduct related regulatory requirements. Furthermore, our data and technology practice can partner with firms to support enhanced automation and effectiveness of system driven processes. Our service is suitable to firms focused on meeting the initial Consumer Duty deadline as well as those already planning for the longer term.
Consumer Duty Brief Recap
The Duty is comprised of the following three components:
Consumer Principle - which requires firms to act to deliver good outcomes for customers.
This includes providing products and services that meet their needs, communicating clearly and fairly, providing timely and helpful customer support and handling complaints fairly.
Three cross-cutting rules, which require firms to
Act in good faith towards customers.
Avoid causing foreseeable harm to retail customers.
Enable and support customers to pursue their financial objectives.
Four Outcome Rules
The cross-cutting rules are supported by ‘four outcome rules’ which set out more detailed requirements:
Products and Services - ensuring the design of a product or service meets the needs and objectives of customers in the identified target market, that the distribution strategy is appropriate and that these are regularly reviewed.
Price and Value - ensuring that customers are receiving value for money. Firms must ensure the price the customer pays for a product or service is reasonable compared to the overall benefits, i.e. low prices do not always mean fair value.
Consumer Understanding - requires firms to ensure their communications meet customers’ needs and can be effectively understood. Firms must appropriately tailor communications when dealing both with customers on a targeted coverage level and on a one-to-one basis.
Consumer Support - the requirement for firms to provide support that aligns with their customers’ needs, enabling consumers to realise the benefits of the products and services they buy, pursue their financial objectives and act in their own interests.
Implementation Timeline
Final rules & guidance were published in July 2022 and firms must comply by 31st July 2023 for all new and existing products they currently sell, with a further 12-months to align closed book products (that are no longer on sale) with the new rules.
27 July 2022
Final rules and guidance published.
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31 October 2022
Firms' boards (or equivalent management body) are required to agree on their implementation plans and be able to evidence they have scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standard
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30 April 2023
Firms' boards (or equivalent management body) are required to agree their implementation plans and be able to evidence they have scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standards.
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31 July 2023
Manufacturers should have completed all the reviews necessary to meet the outcome rules for their existing open products and services so they can share with distributors to meet their obligations under the Duty, and identify where changes need to be made.
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31 July 2024
Implementation deadline for new and existing products or services that are open to sale or renewal.
Implementation deadline for closed products or services.
How Firms Should Proceed
The FCA has publicly committed to take an assertive approach to the implementation of the new rules. With initial compliance deadline looming in the coming months, firms are now entering a critical period to ensure readiness to showcase the ability to deliver good customer outcomes. Whilst there are many factors to be considered the below section outlines some of those that are key for firms to focus on in the coming weeks and months.
Refinement of Submitted Plans
The plans that were required to be submitted by October 2022 should not be considered as finalised artifacts and should be subject to continued evolution and refinement up to and beyond the July 2023 deadline. Due to the tight submission deadline and the wide scope of the task at hand, many firms will have been unable to include the necessary level of detail. When iterating plans, firms should look to continue capturing lessons learnt from the work performed so far and integrate this into the planning.
Continuous Improvement of Outcomes
The implementation deadline for the rules should not be seen as final milestone. Instead, the Consumer Duty should be thought of as a continuous process extending beyond 31st July 2023 whereby firms need to adapt their approach to the four outcomes and ensure that they are robustly integrating them into their ways of working at all levels of the organisation. It will be important that this is considered within the planning of future resource requirements that are needed to ensure good outcomes.
Risk-Based Approach
Firms should be prioritising the allocation of time and resources by utilising a risk-based approach which takes into consideration:
The complexity of the product and service provided;
The target market for each product / service and the sophistication of its consumers;
The nature of the role of the firm and the relationship with its customers.
Where possible firms should look to obtain data and derive intelligence to assess the inherent risk of products, services, communications, or journeys and identify the volume of occurrences. With support from subject matter experts the expected benefits from remediation can be determined, enabling the planning of resource supported by robust information.
Ongoing Monitoring
The FCA has emphasised the importance of firms performing ongoing monitoring to provide regular assurance that good outcomes are being achieved. There is an expectation for firms to use data not only to be able to identify shortcomings but also to explain why they have materialised, facilitating the implementation of improvements. Management must have access to data that is sufficiently detailed to identify disparities in outcomes for specific consumer groups but can also be aggregated to enable strategic decisions.
To meet the immediate deadlines many firms have implemented tactical technology solutions to meet the data, monitoring and reporting requirements. Due to the inherent challenges associated with the use of proxies: which are susceptible to inaccuracy and require manual processing to derive information, it is advisable that firms move swiftly to implement system architecture improvements. This should be considered in the larger context of the firms' strategic objectives for digital transformation to increase the long-term return on investment and seen as an opportunity to gain a competitive advantage by enabling firms to better understand their client base and deliver more suitable products.
How Can New Link Consulting Help?
Programme & Project Management - Provide proven project and programme managers from a pool of highly experienced consultants with extensive industry knowledge to support contingency planning for those firms that are at risk of missing deadlines and post July 2023 planning.
Governance & Culture - Perform an assessment of the culture of the firm in relation to the four Consumer Duty outcomes and implement a plan to improve in-line with senior leadership vision and the individual characteristics of the clients’ business (i.e., products, customers and objectives).
Testing & Assurance - Support risk management and audit functions by performing in-depth outcome testing to identify if desirable outcomes are being achieved for clients from systems and / or processes and assess if the data captured is of sufficient quality to satisfy the requirement to clearly evidence results.
Managing Regulatory Interventions - Our former FCA/PRA Skilled Persons can support and advise senior management through all stages of regulatory reviews and investigations with a view to presenting the firm in the best light and mitigating the extent of potential penalties and remediation.
Data Transformation - Provide technology and data experts who can support firms longer term ambitions to improve capabilities in automation and data availability to evidence good outcomes.
Next Generation Technology - Assist organisations to take advantage of innovative new technologies, such as Artificial Intelligence, to implement Consumer Duty standards more effectively and efficiently.
Further Information
If you have a requirement to assess how your firm is currently meeting consumer protection standards or would like to understand more about our experience and capabilities, please contact us at info@new-linkconsulting.com or explorehttps://new-linkconsulting.com/