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The FCA’s long-awaited policy statement on Consumer Duty brings into focus the sizeable task firms have ahead of the implementation deadline to prepare for the new rules.
The recently published Consumer Duty Policy Statement and Finalised Guidance re-emphasises the FCA’s commitment to achieving fair and consistent consumer outcomes through its conduct regulation. For some firms, this may be only an evolution of where they are now, but for others complying with the new rules will require some deep and serious thought.
For new and existing products or services that are open to sale or renewal, the FCA’s new rules come into force on 31 July 2023, whereas for closed products or services the rules will come into force on 31 July 2024. Despite this, all firms will need to review their current business practices within the next year and improve where necessary.
Firms on the mergers and acquisitions trail will need to ensure the due diligence they complete over any target acquisitions gives full regard to Consumer Duty and any potential liability they may be taking on.
Businesses must ensure that they have implemented the necessary changes ahead of the relevant deadlines and Boards need to have a plan by the end of October 2022 at the latest. However, in a recent Dear Chair Letter to banks, the FCA said “we are not waiting for the Consumer Duty to come in before we act to improve consumer outcomes.” This means that, if your initial review reveals any potential issues, you should take swift action well ahead of the 2023 and 2024 deadlines.
Many firms will have already made efforts to put consumers at the heart of what they do; this new package of regulation widens the pool of firms caught by “retail” focussed rules. It also requires focus on defining, monitoring and managing what good, fair and consistent consumer outcomes are for the products and services your firm sells.
Here are 4 key areas to consider:
New consumer principle and outcomes – breadth and depth
The new Consumer Principle requires firms to ‘act to deliver good outcomes for retail clients’. This is underpinned by three cross-cutting rules, and guidance and rules relating to four consumer outcomes. The FCA has clarified its expectations and the scope of the rules in the guidance document, strengthening its proposals in certain areas.
These principles and outcomes will apply to all firms that have a “material” impact on consumer outcomes, so those in the value chain without direct consumer contact (e.g. fund managers) will need to consider whether they are impacted for the first time. All companies will need to consider what good and fair consumer outcomes look like for their offering and across their supply chains.
Governance – Board level accountability
The Consumer Duty must be reflected in strategies, governance, leadership and people policies, including performance management and pay at all levels. It introduces a requirement to appoint a champion at Board level who, alongside the Chair and the CEO, will ensure the Consumer Duty is discussed regularly and raised in all relevant discussions.
The FCA has set out fundamental questions you can expect to be asked in relation to your governance arrangements, and that your Consumer Duty champion and Chair should use to guide discussions.
Outcomes monitoring – focus on good outcomes for consumers
Additional information on the data firms can use to monitor consumer outcomes sets out when to use data on an individual or cohort basis, and the frequency that firms should be looking at those.
You will need to produce and regularly review management information (MI), specifically on customer outcomes. This MI should be appropriate to the nature, scale and complexity of your business, its position in the value chain, the products and services you offer and the customer base you serve.
Firms should also use the Consumer Duty as an opportune time to review all customer-centric MI which they produce, ensuring the right balance between quantitative information and management commentary. You must ensure the MI equips senior management teams to review their compliance both with the Consumer Duty and wider conduct risk issues.
To measure the success of its proposals, the FCA will monitor key outcomes for consumers, including the Financial Ombudsman Service’s final decisions on complaints about fees or charges, or inappropriate product or service sales.
Remediation – proactive consumer redress
The rules and guidance in the FCA’s Dispute Resolution sourcebook now require firms to proactively consider whether good or fair outcomes have been achieved, not only in response to complaints. Where these outcomes haven’t been achieved, remedial action will urgently need to be taken, including paying compensation if customers have suffered harm because of the firm’s conduct.
8 steps you should start taking now
- Understand how Consumer Duty impacts you.
- Get senior stakeholders on-board and aligned.
- Identify a Consumer Duty lead to spearhead the project.
- Develop a project plan (by the end of October 2022 at the latest).
- Undertake a gap-analysis or maturity assessment.
- Develop an improvement plan to strengthen areas of identified weakness.
- Implement the necessary changes by the 2023/2024 deadline.
- Continue to review and improve.
How we can help
Applying Consumer Duty to your particular business model
Consumer Duty is not a binary pass or fail, compliant or non-compliant regulation. There are a wide range of potential responses your firm can have depending on your place in the value chain and your impact on consumer outcomes.
For example, a firm of limited size with little material impact on a small number of consumers may want to achieve basic application, whereas firms serving millions of consumers with complex products and services will need to be at the leading edge of thinking and implementation.
Bovill has developed a Consumer Duty Maturity Toolkit which can detect any hotspots where you may not be meeting regulatory expectations. It also identifies the maturity of your consumer-focused practices and adjusts your stance accordingly.
Get in touch to discuss how we can help you navigate this new regulatory package. You can also join us at our upcoming webinar, where we will consider how you can effectively prepare for the implications of Consumer Duty.