Consumer duty  

What challenges will companies face in the run-up to FCA’s consumer duty?

  • Describe some of the challenges created by the consumer duty
  • Explain what factors advisers need to consider with the duty
  • Identify the impact of the duty on complaints to the Fos
What challenges will companies face in the run-up to FCA’s consumer duty?
The principles of the consumer duty must by implemented and fully embedded by companies by July 31 2023 (Photo: Timon Schneider/Dreamstime)

Following the Financial Conduct Authority’s Final non-Handbook Guidance last July, plans to implement its new consumer duty were finalised at the end of October 2022 and companies should now be moving towards the first implementation deadline of July 31 2023 for all new and existing products and services that are on sale.  

The FCA reviewed companies’ plans in January and found that there was a risk that some businesses may not be ready by the implementation date. In particular, the regulator highlighted that attention should be focused on prioritising implementation work effectively to reduce the risk of poor consumer outcomes, embedding the requirements and working with other companies within the distribution chain.

The FCA has sent out various Dear CEO letters and published several inside FCA podcasts to assist companies with their implementation and work to ensure the duty is in place by July 31 continues.

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Since then, in a speech on May 10 2023, FCA executive director of consumers and competition Sheldon Mills has commented that many companies are on course to meet the implementation deadline.

Implementation plan

While the FCA has not set out specific steps for implementation, the work needed to implement the duty within a company will vary depending on various factors, including the products it offers, its customers, the distribution chain, its FCA permissions and its existing practices. 

Further, the outcomes-focused nature of the consumer duty means that it is not possible to prescribe a one-size-fits-all implementation plan. However, by way of a non-exhaustive list, work to implement the duty could have included the following:

  • A gap analysis of current processes, procedures and precedents against the requirements of the duty to identify the work required.
  • A map of the customer journey. This could help to identify interactions with customers, whether there are any opportunities to improve customer support and understanding, areas where positive friction may be needed, and to highlight any sludge practices that need to be addressed.
  • Consideration of how consumers interact with your company, and the contact points you will have with consumers while dealing with regulated matters.
  • A review of correspondence. Identifying any precedent letters that may need to be updated to support the customer support and customer understanding outcomes of the duty. It may be appropriate to draft a general principles of correspondence guide that meets its requirements if bespoke correspondence is drafted frequently.
  • A review of guidance and policies upon dealing with customers with vulnerabilities and updating these in light of the requirements of the duty.
  • Consideration of what management information may be needed to evidence compliance with the duty, and how this data will be reviewed to ensure good outcomes are being achieved. This could include a process governing the action to be taken if a weakness is identified.
  • A review of current systems and processes looking at whether they could be improved to assist in implementing the consumer duty — working in a different way or using technology solutions could assist in monitoring compliance.
  • Consideration of methods of communication and whether additional flexibility may be needed; for example, offering a telephone line as an option in addition to digital support services to ensure consumers can access the support they need in a timely manner.
  • Consideration of the signposting of customer support organisations within correspondence to offer tailored support, particularly for correspondence being sent to customers in financial difficulty.
  • Consideration of how feedback is received from customers responded to. 
  • Reviewing staff training programmes on compliance issues to ensure they are updated to reflect the requirements of the duty.
  • A review of products and services from a price and value perspective, from the sale of the product or service, throughout its life, including if any enforcement action may be taken. This would include looking at any broker fees or commissions, the quality and benefit of the service to its intended market, any fees or charges that could apply — including any professional fees of relevant third parties). The FCA has published its findings from its review of fair value frameworks to assist with this.
  • Considering whether your company’s purpose and culture are aligned with the duty’s requirements. This could involve looking at internal incentives and remuneration, strategy and risk appetite to ensure that good consumer outcomes are prioritised throughout your business.

What’s still to come

By July 31, the principles of the consumer duty must by implemented and fully embedded. The implementation plans and work done to date should have identified the steps needed for your company to implement the duty, and you should now be working on communicating the requirements to employees, providing guidance and training on any new policies, procedures, practices and/or precedents. 

Existing training on compliance issues may need to be updated to reflect the duty. It may also be appropriate to build in the opportunity to test the changes you have made against its requirements before it comes into force.

After implementation 

Actioning the implementation plan in advance of the consumer duty coming into force is not the end of the story. It includes an obligation on companies to “consistently consider the needs of their customers, and how they behave, at every stage of the product/service lifecycle”, and to “continuously learn from their growing focus and awareness of real customer outcomes”.

Accordingly, after the implementation date, companies must continue to work on their compliance with the duty, monitoring the outcomes their customers are receiving, and proactively taking action to address any risks to good consumer outcomes. 

As senior managers are accountable for consumer outcomes under the senior managers and certification regime, the management information produced on the duty will need to be accurate and reviewed on a regular basis to ensure it is properly embedded on an ongoing basis.

Although there is no private right of action for breach of the duty, the FCA has stated that “firms need to make sure — and be able to show us — that they are acting to deliver good consumer outcomes and protecting consumers from harm”.