The FCA’s Executive Director, Sheldon Mills, has delivered a speech focusing on the countdown to Consumer Duty. The new duty comes into force on 31 July this year, giving firms less than 3 months to comply. So, if you haven’t already, now is the time to take action on implementation.
In his speech, Mills thanks firms who have “worked tirelessly to meet this deadline” and notes that where implementation has been successful, “firms will deepen their trust with customers and deliver better outcomes for people and small businesses”.
He goes on to outline the benefits of the duty, which he hopes will see a fundamental change in culture, along with firms being more aligned to the needs of customers. The regulator’s aim is to simplify the complexities of the FCA handbook, push for higher standards and trust in the UK financial services industry, with the ultimate goal of attracting investment and enhancing competition.
Key questions that the FCA has outlined, that firms should be asking themselves are:
At this stage, the main area of focus looks to be fair value (likely as a result of the current cost of living crisis). The FCA’s concerns are around how firms will evidence how their products provide value for the customer – what evidence can firms provide which confirms that a reasonable price is being paid for the product or service?
In its review of the fair value framework, published here, the FCA cites a reliance by firms on broad averages, rather than an in depth look at different customer groups, when assessing value. The FCA wants to see that firms are thinking about what their products offer to vulnerable customers or those on a lower income.
Another criticism is the level of challenge that firms are willing to implement, such as where they are making high profit margins. In these cases, the FCA wants there to be a conversation around whether a customer is truly receiving fair value, if the firm is making a disproportionate profit. On this, the FCA is asking for renewed focus ahead of the deadline.
To conclude, the emphasis is on firms acting to deliver good outcomes for customers – and being able to show the regulator how they do this. The focus is on customer understanding, meeting the needs of customers, fair value and providing the support that customers need, through the whole lifecycle of a product.
From 31 July, the FCA has said it will prioritise cases where it sees the most serious breaches – with robust actions in the form of interventions, investigations, and disciplinary sanctions for the most serious cases. It reiterates the forward-looking nature of the Duty, so there will be no assessment of past actions.
The message is one of action – there is still time to make changes.
If you need help before the deadline, please get in touch with our Financial Services team, who would be happy to review any changes you have made. We can also work with you to add to or improve your implementation plans, ahead of the upcoming deadline.