Eyes on the prize for the FCA’s new Consumer Duty
The FCA’s Sheldon Mills has set out key steps in the final stages of implementation for the new Consumer Duty, as well as reminding firms about the ultimate benefits of the rule.
In early December 2022, hedge fund compliance officers battled travel upheaval and bitter cold to attend one of our quarterly roundtables. The first topic on the table was the Financial Conduct Authority’s (FCA) new Consumer Duty. With little less than six months before implementation (the deadline is July 31, 2023), confusion remains – even around who must comply.
Late last summer, the new Consumer Duty (CP21/36 and final rules) was published by the FCA and touted as means to create a “system in which firms can thrive and consumers can make informed choices about financial products and services”. However, it soon became clear that the new Duty may not be as rosy to implement as the outcome it sought to achieve. This was quickly reflected in an extended implementation date, moving the deadline from April to July 2023, or July 2024 for closed-book products.
In perhaps its first acknowledgment of the complexities and toll of the new Duty, the FCA’s Executive Director of Consumers and Competition, Sheldon Mills, has said that the FCA can “understand why there has been initial resistance from some quarters of the industry”, adding that “the FCA have not been great at what is in it for firms and UK Plc”. In his speech, delivered to at the “Countdown to Implementation of the Consumer Duty” event, Mills expanded on the business and operational benefits of the new Consumer Duty – perhaps in a bid to convince firms of the positives as they battle the final stages of implementation.
Anecdotally, Mills recalls a recent conversation with an industry leader who had said “the Duty was a pain as it required work and resources” but that, on reflection, “it was proving to be a useful exercise”. Notably, the business was now connecting with customers with whom they had not recently engaged with, and simultaneously “identifying new opportunities earlier”.
Adding to this, Mills notes that the purpose of the Consumer Duty is to implement a shift in mindset for financial institutions to one that put consumer fairness at the heart of the industry. After all, “what sparks innovation if not thinking differently?”, he asks.
Tips for implementing the new Consumer Duty
Amidst the positive news stories and promises of “incrementally, or even radically, improving your offering to the market”, Mills provides five tips for firms who are fast approaching the deadline. These are:
1. Ensure that your commercial partners – including your distribution network and wholesalers – are on board, and that you have shared relevant information with them.
2. Focus on areas that have the biggest effect on customer outcomes, using the simple starting point of asking “is this product or service designed to deliver good outcomes for consumers?”
3. Spring clean any “sludge practices” or “cobwebs” of bad practice. Take stock of what you have and remediate what doesn’t fit, ahead of time.
4. Engage with your Chairperson and non-executive directors in approving the final plans. The FCA has seen examples where there was no engagement or where plans were simply approved without discussion – this “appeared superficial”.
5. Appoint your Consumer Duty Champion – the FCA does not want to see it shared across the entire board.
Consumer communication is a key consideration
Consumer communication plays a pivotal role in the FCA’s new Duty. As the FCA’s Director of Consumer Investments, Therese Chambers, highlighted in a recent speech:
“Firms need to ensure their communications support consumer understanding of their products and services.”
The key, Chambers says, is to equip consumers with the right information at the right time, including the nature of the services to be provided, the costs, and of course the suitability of any product or service provided. She adds that “poor disclosure has been a consistent theme” and that the regulator will expect better standards under the new Duty.
Few will be in doubt that the end goal for the FCA’s Consumer Duty is necessary and needed. However, as with almost all new regulatory obligations, the path to the goal can be rocky, especially when the end goal requires a complete rewiring of long-standing processes. Mills himself acknowledged that “skeptics have questioned wither the Consumer Duty is really deliverable”. Of course, the FCA believes the answer to be yes. Here’s hoping there will be light at the end of the tunnel.
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