Consumer Duty: Final Rules

In the new Consumer Duty, the FCA has indicated that firms can ‘expect at every stage of the regulatory lifecycle to be asked to demonstrate how their business models, the actions they have taken, and their culture are focused on good customer outcomes.’

The regulator also discusses the MI and data types that companies need to track. Firms will struggle to meet these robust expectations using manual methods or in-house tools.
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_{— JOHN LIVER, STRATEGIC ADVISOR TO KORE
FORMER CO-CHAIR OF THE EY GLOBAL REGULATORY NETWORK}

The basics of the Consumer Duty

The new Consumer Principle says a firm “must act to deliver good outcomes for retail customers.” This is now Principle 12, and supersedes Principles 6 and 7 for retail customers. The FCA says it “is a clear break from existing terminology.”

The new Cross‐cutting Rules must be implemented both proactively and reactively. Under the rules, firms must:

• act in good faith towards retail customers
• avoid causing foreseeable harm to retail customers
• enable and support retail customers to pursue their financial objectives

The FCA has published detailed guidance to help firms implement the “Four Outcomes”.

The guidance targets what the FCA says are key elements of the firm-consumer relationship:

• Communications
• Products and services
• Customer service
• Price and value

The deadlines for implementation

Firms only have an extra three months to implement the Consumer Duty. Consumer Duty compliance needs to be in place for new and existing products or services that are open to sale or renewal on 31 July 2023.

The deadline has been extended for closed products and services. Firms have an extra year for Consumer Duty compliance for closed products or services – 31 July 2024 is the deadline. Previously, these were implicitly included in the original April 2023 deadline.

Firms need to have an implementation plan in place by the end of October 2022. Boards of directors should agree implementation plans by that deadline and then maintain oversight of plans’ delivery.

Governance and SMCR

Boards of directors must appoint a Consumer Duty champion. The individual should be an independent non-executive director. Alongside the chair and CEO, they must ensure the Duty is regularly discussed.

Senior managers must support the Consumer Duty across the product lifecycle.

The FCA says the “Consumer Duty imposes expectations across the product lifecycle including design, distribution and delivery of products and services and each senior manager must take responsibility for the role they can play in delivering compliance with it.”

Technology and data

The FCA is very focused on the data firms use to measure outcomes. The FCA says: “One question firms can ask themselves is whether they are applying the same standards and capabilities to monitoring customer outcomes as they are to generating sales and revenue.”

Firms will need to produce and regularly review MI on customer outcomes. Says the FCA, “This MI should be appropriate to the nature, scale and complexity of their business, considering the size of the firm, the products and services they offer, and the customer base they serve.” The regulator suggests data types firms should collect throughout the guidance.

Extra:

The FCA expects more from more senior people under the individual conduct rule.

The regulator says “the more senior a person is and the more relevant their role is to the Duty, the more we expect from them in delivering good outcomes for customers.”

Download our FCA Consumer Duty White Paper here.