A Reminder on Final Preparations for Consumer Duty

What is Consumer Duty?

The consumer principle introduces two over-arching objectives that each firm must work towards. Every firm must be able to demonstrate that it has taken reasonable steps to “avoid causing foreseeable harm” to consumers and to provide the mechanisms to “enable customers to pursue their [the customer’s} financial objectives”. This is a mandated charter by which to empower customers in decision-making through enforcement on firms to act in “good faith towards customers”. The determination of the FCA is to protect consumers through the regulation of a firm’s behaviour towards customers, and not simply to reply on ‘market forces and competition as the ultimate arbiter. In this environment, companies who are able to adapt to the changing regulatory environment and to implement the regulatory and operation aspects of the rules will win. Indeed, the FCA have set the expectation that “firms appoint a Consumer Duty champion at board or equivalent level.”.

The FCA sets four key outcomes for the key elements of a firm’s consumer relationships.

1. Communications.

2. Products and Services.

3. Customer Service.

4. Price and Value.

These rules are cross-cutting and measurable across the entire business, so a firm must be able to demonstrate that in the four areas mentioned above, it acts in good faith towards its retail customers and helps customer to pursue [their] own financial objectives. Following our review of firms’ plans to embed the Duty within their businesses, the FCA have found that they identified firm’s “plans that suggested some firms may be further behind in their thinking and planning for the Duty.”. From a regulatory perspective,  many firms are clearly not ready with the inherent “risk that they may not be ready in time, or they may struggle to embed the Duty effectively throughout their business.”.

To assist, the FCA have proposed three key areas of advice, which we include below.

1. Effective prioritisation: We saw some plans where it was not clear what the basis was for prioritising some implementations work ahead of other aspects. Firms should make sure they are prioritising appropriately, focusing on reducing the risk of poor consumer outcomes and assessing where they are likely to be furthest away from the requirements of the Duty.  

2. Embedding the substantive requirements: We recognise plans were likely to be high level given the early stage at which we reviewed them. Nevertheless, we saw some plans that suggested firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate. We urge firms to carefully consider the substantive requirements of the Duty, as set out in our final rules and guidance. Firms should ensure that, when they are reviewing their products and services, communications and customer journeys, they identify and make the changes needed to meet the new standards.

3. Working with other firms: To implement the Duty on time, many firms need to work and share information with other firms in the distribution chain. However, we found some plans which gave little focus to this area. This suggests some firms may need to accelerate their work on this important aspect of implementation.

If you are unsure of your firm needs to implement the rules or is ready, or for a chat around any concerns at no cost, drop us a line: https://www.anyaccount.org/schedule-a-call