Expectations around the new Consumer Duty

Sarah Drew & Rachel Hillier, from our Financial Services Regulation team, consider the newly implemented Consumer Duty and what they think you can expect to see from the FCA over the next 12-24 months. Watch the video now to find out more.

Background to the Consumer Duty

The Consumer Duty came into force on 31st July 2023 and is centred around the new principle, which is Principle 12. A new Duty for ‘firms to deliver good outcomes for retail customers’.

It’s an important milestone for the FCA – for their business and statutory plan. The Principle is made up of three cross-cutting rules and these are the anchor to the Principle. Firms have to apply those three cross-cutting rules to four different outcomes.

Not sure if the Consumer Duty applies to you or you want to know more about it? – Read more about the Consumer Duty in our dedicated article. 

What do you need to be doing that you weren’t before?

Firms should have put in place an implementation plan, so how you’re going to implement the Consumer Duty. If you haven’t already done that, then you should make this a priority now.

What are people most concerned about with Consumer Duty?

At the moment, there is a lack of benchmarking on what firms need to do under the new duty and whether they’re doing enough to meet the obligations that have been created by the FCA. It’s difficult to be across all of the rules when they are relatively vague and require firms to make their own methodologies on how they’re going to implement the Duty. This is really the main concern at this point.

The lack of anything to compare with has also been particularity difficult with making sure that firms are comfortable that they’re doing enough.

What can you do to make these issues less of a problem?

It’s helpful for you to consider the Consumer Duty as a lens through which the FCA is going to be looking at firms regulatory obligations in general, so;

• what you’re doing that is likely to create a good outcome for customers
• what you’re doing that may create a bad outcome for customers
• what you’re doing about it.

This could include how you’re taking steps to improve the situation for those customers and seeking to avoid similar issues in the future.

What will we see from the FCA over the next 12-24 months?

In its 23/24 business plan, the FCA say they have bolstered their resources to ensure the Consumer Duty is embedded effectively within firms and is central to their technology. They’ve said they’re going to be more assertive and data led as a regulator. So, you can expect the FCA to be asking questions and requesting information and data to prove what they’re saying.

What should you be doing now?

The main message is, be prepared. Implementation planning has all been done now, but we recommend you don’t view this as a tick box exercise. The most effective way to protect your business is to evidence what you are doing – testing, reporting, reviewing things like complaints data, renewals, and testing that customer understanding.

Keep asking questions:

• How can you improve?
• What do you need to look out for to ensure good outcomes?
• How can you record whether improvements are working?
• If the FCA came knocking, would you have that evidentiary base that you’ve complied?

The planning stage was important but the FCA wants to see that the duty is making firms look at continuous improvement – it’s not something to draw a line under now the duty is in force.

It also needs to be at Board level. So, it’s no good just having a compliance team that’s done all the work. It needs to be reported upwards, right to the top so that those who are making those executive decisions that have senior management functions, actually have oversight, and that data has been looked at from top level.

The Consumer Duty Champion, who’s been appointed at board level, will be challenging those decisions that are made. There also needs to be Board level minutes evidencing that that happens at that level.

What if you think you haven’t done enough to comply?

The easiest way to tackle the duty is to go back to the guidance and break everything down into the 4 outcome areas. You can look at individual products or you can group products together, if that’s appropriate, depending on your firm.

Price & Value

The area we think the FCA is going to focus on specifically is price and value. We have seen a few communications about this recently (review of fair value frameworks). We recommend looking at:

• the nature of the product or service, including the benefits and the qualities that a customer may reasonably expect
• any limitations that are part of the product or service (e.g. limitations on scope of cover for insurance products and if it’s an unusual scope of cover, is it clear to a customer?)
• the expected total price customers will pay, including all applicable fees and charges over the lifetime of the relationship between customers and firms.

In summary

So because the Consumer Duty is so principle based, it means every firm is going to have to look at its own products and its own customers and apply those cross-cutting rules to its own situation. Every single product needs to be looked at individually and those cross-cutting rules and those principles need to be applied.

There is definitely a lot going on with the Consumer Duty, so if you do have any questions, please do get in touch with us.

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