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With six months until the final Consumer Duty deadline, the FCA expressed concern this week that some firms are behind in their planning. And only a third of investment firms attending our webinar this month had started implementation – despite the initial deadline being 30th April.
Those who have kicked off their Consumer Duty projects are finding that the devil is in the detail. And they’re not seeing the judgement calls they will need to make until they are deep into the project. Firms need to move from planning to implementation to find and solve the grey areas before time runs out.
FCA review of Consumer Duty implementation plans
Over November and December, the FCA reviewed implementation plans for Consumer Duty from around 60 firms – most of which are larger retail-facing firms. On 25th January, it published the result of this multi-firm review into Consumer Duty implementation.
The review showed that many have ‘established extensive programmes’ to embed the Duty. But the regulator also indicated that some firms were further behind in their thinking and that there was a risk they would not be ready in time.
A third of investment firms not yet implementing plans for Consumer Duty
At our recent webinar for investment firms, we asked both manufacturers and distributors about their stage of readiness. A third of attendees said they were still in the planning stages and had not yet started implementation – despite it being just three short months until the FCA’s deadline of 30th April for product manufacturers and only another three before the ultimate July deadline expires. Nearly a half said they will find the April deadline a challenge.
Identify the priorities as soon as possible
From our experience, its only when firms start to implement changes that the scale and extent of the Consumer Duty hit home. Making progress now, especially for high-risk areas and where technology related change is involved, is essential. Some Consumer Duty requirements can wait, including detailed MI that may not be needed until well after the deadline passes.
Knowing what to prioritise, and how to get behind those priority changes, will make all the difference to the FCA judgement of a firm’s efforts. Last minute, cap in hand, apologies to the FCA could be costly in many, sometimes unexpected, ways.
Manufacturers and distributors – the hot potato
What the FCA describes as “distributors” – and the rest of us refer to as IFAs and wealth managers – are anxiously waiting on “manufacturers” (fund managers and lifecos) for details on product readiness.
Currently, no one really knows what information product providers will be sharing with distributors this April. The FCA has issued high level requirements, but the detail is up to firms. In some cases, such as value assessments on funds, existing disclosures may suffice.
But firms are still having to unpack the precise boundary between existing requirements (PROD and COLL rules) and Consumer Duty. Looking at the intersection of current FCA rules and the new Consumer Duty, the FCA has, on the face of it, given license for firms to reuse existing material. Subtle differences mean many manufacturers are likely to make tweaks to fit the new regime. Only 20% of attendees at our webinar felt they could rely on their current compliance with PROD and COLL for meeting the Consumer Duty Products and Services and Fair Value outcomes.
The intersection between manufacturers and distributors doesn’t end with product disclosures. Asset managers and other product providers are also having to consider what information they will need to capture from distributors to meet the obligation to look through value chain to align target markets and assess outcomes.
Through the gallant work of trade associations such as TISA and the IA, we may see an industry-led approach that could standardise the flow of information across the value chain. But these initiatives are only ever likely to provide a guide on how information will be shared, not how the information will be used. Judgement will still sit with individual firms (as it should be).
The devil is in the detail
It’s not just consultants who are saying the devil is in the detail this time. Many firms are wrestling with the increasing vexatious question of what – in practice – the requirements from the Consumer Duty actually mean.
From the sublime to the ridiculous, there is a seemingly endless stream of questions that have emerged. Does the Consumer Duty apply to overseas clients, overseas products, both or neither? What about high-net worth clients, where do they fit? What is a “value assessment” thingy, and how can I evidence “fair”?
Until firms start their journey of actively implementing the rules, these challenges appear largely concealed behind the veil of ignorance.
The all-seeing eye
No doubt, a mountain of policies, procedures, and management packs will be constructed in the coming months. But the true measure, the FCA’s measure, of success will not be the paperwork, it’ll be the judgements firms make.
How does a firm with a 10-year-old product decide it still meets the new Consumer Duty standards? When it was initially conceived and launched, the FCA hadn’t yet been born. We’ve had six prime ministers in the meantime: OK, half of those have been in the past year and six months, but you get the point. Times have changed.
Scrutiny on these judgments and the senior managers that form them will be the true measure of the Consumer Duty. Planning won’t mitigate the risk of bad decision making.