The Financial Services Regulatory (FCA) Consumer Duty (Duty) soon celebrates its first anniversary, originally coming into force on 31 July 2023 for open products and services and applying to closed products and services from 31 July 2024.
Setting a higher standard for consumer protection across financial services, it tasks relevant firms to put their customers at the heart of all that they do and marks a major shift to focus on ‘outcome’ based regulation too.
So, with that anniversary fast approaching, it’s perfect time for firms to reflect on what the Duty is, and how to make sure it’s well embedded into business.
What is the Consumer Duty?
It’s a regulatory framework focused on delivery of better outcomes for consumers in financial services, much of the key rules and guidance sits within FCA Handbook, PRIN (and other sections mentioned therein) and non-handbook guidance.
Breaking it down, there are three key elements:
- Consumer Principle – firms must act to deliver good outcomes for retail customers.
- Cross-cutting rules – to:
(1) act in good faith towards retail customers.
(2) avoid causing foreseeable harm
(3) enable and support retail customers to pursue financial objectives
- Four outcomes:
(1) Products and services - designed to meet needs of consumers and sold to the correct market.
(2) Price and value - products and services represent fair value.
(3) Consumer Understanding - firm communications help consumers make effective and properly informed decisions.
(4) Consumer Support - meet needs of consumers at all stages of the product and service lifecycle.
The Consumer Principle sets a clear tone of overall standards and expectation and cross cutting rules aim to clarify overarching expectations of firms. The four outcomes work as a suite of rules and guidance with more detailed information on firm conduct and behaviours.
What should we be doing now?
It will really depend on your firm – how you operate, level of preparedness, your products, service and type of customer you engage with. However, it would be wise to consider:
- Monitoring customer outcomes – is your firm satisfied it can truly and accurately measure what ‘good’ looks like against the four outcomes for your customers? It’s a major Duty requirement. What steps do you have in place to gather necessary data and how is this fed on to relevant team members? This is relevant from Board level, to those making key management decisions and servicing customers day-to-day.
- Finalising your annual report – the Duty requires firms to product an annual report, considered and challenged at board level, demonstrating how you are providing good customer outcomes and setting out actions to remedy issues identified. This needs to be finalised by 31 July 2024, together with any analysis underpinning your findings.
- Action plans for poor outcomes and improvement – linked to the above, if poor consumer outcomes (or risks of these) are identified, consider your action plan to remedy. This should be thorough, consider how to investigate to the root of issues where to best gather feedback and include useful data. It’s also important to consider if it is linked to a firm issue or a third party, as the Duty has distributors and manufacturers. It’s wise to document your progress and steps to resolve these issues.
- Readiness for ‘closed product and service’ go live – congratulations on navigating the first 12 months, your firm should be well prepared for the 31 July 2024 for closed product and services ‘go live’. The FCA published a range of Dear CEO letters in May 2024, setting out expectations and strategy. It’s wise for firms to make sure they’re comfortable in evidencing this.
- Consumer Duty Champions – firms need to demonstrate clear understanding of the Duty top down. Your individual appointed ‘Champion’ can be significant help in embedding this, so – one year in, make sure this role is working effectively. Is your firm happy with level of board oversight and understanding? Could your champion be doing more, is your champion still the right fit for the role?
- Vulnerability – intrinsically linked to the Duty and achieving good outcomes, firms should be carefully considering, and documenting, approach to treatment of vulnerable customers - it remains a key regulatory focus and the FCA maintains helpful guidance. Assessment of vulnerability is complex, you should make sure staff understand customer needs, have appropriate training and are well supported to monitor and take action when needed.
What lies ahead?
The FCA continues to engage with firms on Duty obligations and remains highly vocal on intention to act where it identifies firms delivering poor customer outcomes.
In 2024 alone, we’ve seen:
So, moving forwards remember – it’s not once and done! – firms would be wise to continue to monitor Duty obligations, carefully document compliance and engagement and seek guidance if it challenges arise.
Get in touch
We recognise the financial service landscape is complex but it’s critical firms are informed of regulatory change to manage risk and service customers effectively.
Here at Ashfords we support a variety of regulated firms with this, delivering advice in plain English so you understand your regulatory responsibilities and can make effective decisions and operate in a compliant manner.
If you have queries about the Duty and how it applies to your firm, or you’d like to discuss broader FCA and compliance support, please contact Oliver Woodhouse, who leads our financial services regulatory practice and works closely with lawyers in our fintech team.
