The Financial Conduct Authority (FCA) has undergone a review of companies’ Consumer Duty plans to understand how they are looking to implement the regulation into their businesses.
While the regulator found that most firms seem to be complying with the regulation, there are a small number of companies that are falling behind, especially considering the 31 July 2023 deadline.
The FCA said its review highlighted that many firms “show they understand and embrace the shift to delivering good customer outcomes”, but others are at risk of struggling to comply by the deadline.
More specifically, some businesses have shown poor prioritisation and implementation work. Some plans suggested that firms considered the requirements “superficially or are over-confident that their existing policies and processes will be adequate”. A lack of information sharing with other businesses was also flagged by the watchdog.
Points of action
While the FCA said that several good practices were identified in the review, there were six points where further improvement was needed:
- Governance – some firms lacked an individual or individuals tasked with being Consumer Duty champions, while some boards did not scrutinise and challenge plans properly;
- Culture – more in-depth plans on how the regulation will be implemented in companies’ culture and people approach is required;
- Deliverability – some implementation timelines were unclear and lacked appropriate resource and mitigation planning;
- Third parties – greater engagement and exchange of information between firms and third parties required;
- Outcomes – some companies appeared “complacent” about past improvements, initiatives, or current frameworks, while others lacked a clear methodology on how to review their products, services, communications and customer journeys; and
- Data strategies – in some instances, these strategies were presented as a “repackaging” of existing data without taking into consideration the gaps or outcomes that need to be monitored.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The Consumer Duty will bring about a step change in the way financial services firms treat their customers and we welcome the work firms are doing to implement it. Given the scale of the reform, we recognise that some firms need to make significant changes.
“For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new duty. Firms will also see the benefits of the duty, with increased trust in the sector, more flexibility to innovate and in time fewer rule changes.”
‘Time is ticking’
Roddy Munro, head of proposition specialists at Quilter, said that the FCA’s review shows just how “seriously the regulator is taking the Consumer Duty”.
“It is a helpful document in that it not only sets out where improvements in implementation plans can be made, but also what is currently being assessed as best practice and where the industry needs to be setting its sights,” he added. “Time is ticking in terms of getting processes and actions in place and this review highlights that as an industry we cannot take our foot off the gas.
“Given the professionalisation of the advice industry in the last decade and an increasing focus on value, many will be in a good starting position. It is this value that is so important, and it should not be confused for price.
“Clients and their families will value different elements of advice at different points over their lifetimes. As such, we cannot look at price in isolation, but as part of the wider picture when evidencing value to clients. This duty, therefore, presses home the point of having quality data collection for each product and service and ensuring the correct metrics are in place in order to remain compliant. We cannot rest on our laurels that we do much of this already.
“While the FCA hasn’t been overly prescriptive in what it is expecting, this should not be confused with a lack of certainty from the regulator. Indeed, detail and accountability are key. The regulator has flagged today that you must be clear about who is leading the programme, with clear timelines and information on how the duty will be embedded within company culture.
“We have moved to an era of outcome-based regulation and as such providers and advisers need to take what they believe are the necessary steps to evidence good customer outcomes and fair value. This means doing a thorough gap analysis of the products and services you offer, assessing your client communications and creating a customer centric culture within your business.
“While these internal plans should be well advanced, it is necessary that providers and advisers do not silo themselves and leave themselves open to risk of third-party non-compliance. We all play different roles in the value chain and rely on a variety of suppliers and thus a collaborative approach is required to ensure we achieve good customer outcomes. Knowing who the product manufacturers are, how a product or service is distributed and who owns the client relationships, as well as what roles others play will be crucial to make the Consumer Duty the success we want it to be.”
