FCA issues Consumer Duty updates with one month to go - 28 June 2023

With just over one month to go to Consumer Duty implementation, the FCA is continuing to publish additional information to firms, with updates posted on their website yesterday 28^th June (2023). From the updates, it would appear that the FCA is satisfied that many firms are working hard to meet the new, higher standards. However, they are also aware that other firms have more to do to meet the 31^st July deadline and want firms to check that they are on track and making most of the time left to implement their plans.

What are the key takeaways?

The role of the Board

The FCA has specifically highlighted that they expect boards, or equivalent management bodies, to have clear oversight over their firm’s Consumer Duty implementation plans, have identified any potential gaps or weaknesses in their ability to comply with the Duty, and have plans in place to rectify this. If they find deficiencies in relation to the implementation and embedding of Consumer Duty, the FCA has been very clear that it will be asking the Board and Senior Management to explain themselves and may potentially take action against them.

Guidance to identify your firm is on track

The FCA published 10 questions to help prompt firms to consider whether they are on track to meet Consumer Duty requirements and to identify gaps or areas for improvement.  The questions are listed below and on their own are useful as they clearly  highlight the main areas of focus for the FCA.

1. Are you satisfied your products and services are well-designed to meet the needs of consumers in the target market and perform as expected? What testing has been conducted?
2. Do your products or services have features that could risk harm for groups of customers with characteristics of vulnerability? If so, what changes to the design of your products and services are you making?
3. What action have you taken as a result of your fair value assessments, and how are you ensuring this action is effective in improving consumer outcomes?
4. What data, MI and other intelligence are you using to monitor the fair value of your products and services on an ongoing basis?
5. How are you testing the effectiveness of your communications? How are you acting on these results?
6. How do you adapt your communications to meet the needs of customers with characteristics of vulnerability, and how do you know these adaptions are effective?
7. What assessment have you made about whether your customer support is meeting the needs of customers with characteristics of vulnerability? What data, MI and customer feedback is being used to support this assessment?
8. How have you satisfied yourself that the quality and availability of any post-sale support you have is as good as your pre-sale support?
9. Do individuals throughout your firm – including those in control and support functions – understand their role and responsibilities in delivering the Duty?
10. Have you identified the key risks to your ability to deliver good outcomes to customers and put appropriate mitigants in place?

An indication of the FCA’s intentions

The FCA has been clear that once the Duty is in force, they will focus on the most serious breaches, taking swift and assertive action, against firms and senior individuals, where they find evidence or risk of harm to consumers.

Firms’ readiness – Consumer Duty Firm Survey Spring 2023

In Spring 2023, the FCA commissioned Ipsos UK to undertake an anonymous survey of 1,230 firms who are in scope of the Consumer Duty to help them understand how prepared firms were in meeting the implementation deadline of 31 July. Although the survey focused on smaller firms that have historically had less contact with the FCA, or financial services is not their primary business, there were high levels of engagement and understanding of the Duty.

• 64% of firms surveyed said they would be fully compliant by the deadline
• 23% said they would comply with most requirements by the deadline but would still have some work to do
• 7% of firms surveyed said they would still have significant work to do after the deadline or had not started work on the Duty

Retail finance providers and debt advice firms scored lower than other firms in relation to engagement, understanding of Consumer Duty requirements, and implementation progress. The FCA has stated that it will be communicating with these firms directly and working with relevant industry bodies to reinforce the guidance and communications they have already issued.

Firms said they would like more information on outcomes monitoring and the price and value outcome. The FCA has since published a review of firm’s fair value assessment frameworks which includes good and poor practice to help firms implement this aspect of the Duty:

• Consumer Duty: Findings from the FCA review of fair value frameworks

and a podcast explaining how outcomes should be monitored once the Duty comes into force:

• Inside FCA Podcast: Explaining Consumer Duty outcomes monitoring

Guidance on how to maximise the time left

The FCA has set out a number of steps which firms should take to maximise the time left to implement the Duty:

• Firms that believe they will meet the implementation deadline need to maintain oversight of their implementation plans to make sure that they stay on track.
• Where firms have made good progress with their implementation plans but may be struggling to complete all of the necessary work, they should prioritise the outstanding actions that will improve consumer outcomes and reduce risks of harm.
• Firms that have not focused on implementing Consumer Duty to date and will not meet its requirements by the deadline, must ramp up their implementation work and prioritise the actions that are likely to have the greatest impact on consumer outcomes.
• If a firm believes that it will be in significant breach of the Consumer Duty by 31 July, it must alert the FCA and be prepared for the FCA to take action where they see Consumer Duty implementation failures or potential harm caused to consumers.
• Boards and management bodies should assure themselves that their firm has fully engaged with the Consumer Duty requirements and is focused on delivering good consumer outcomes. They are expected to make sure that they have identified any potential gaps or weaknesses in their implementation and are taking action needed to remedy this. Where actions are prioritised there should be appropriate oversight over this prioritisation.

In conclusion...

The updates contain practical advice to help carry firms through the last month in which they have to fully implement the new Duty and key areas of importance have been set out by the FCA. That said, what is also clear is that the FCA is not shying away from stating their intentions towards firms that are not compliant by 31^st July and Boards and Senior Management must take an active role in implementing and embedding the new Duty. With firms being encouraged to inform the FCA if they believe that they will be in significant breach of the new Duty, only time will tell what the ‘robust action’ is that the FCA will take.

If you are still working your way through your Consumer Duty implementation plan, or have reached a roadblock in implementing it, please don’t hesitate to get in touch. We would be delighted to help you meet the all-important deadline of 31 July.

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