With 6 months to go, FCA publishes first review of Consumer Duty implementation
With 6 months to go before the Consumer Duty comes into force, the Financial Conduct Authority (FCA) has published a review of how firms are planning to implement the Duty. The review focused on the largest firms however the findings are likely to prove useful for all firms, especially those asked to respond to an FCA survey which is expected “soon”.
Shortly after the October deadline for firms to have prepared and have signed off their Consumer Duty implementation plan, FCA requested and reviewed the plans of the firms with the greatest potential impact on consumers and markets i.e. those larger firms with a dedicated FCA supervision team, who primarily operate in retail financial services markets.
Key Takeaways:
The review highlighted three key areas FCA say firms should particularly focus their attention during the second half of the implementation period (to 31 July 2023):
Effective prioritisation: Some plans were not clear on what the basis was for prioritising some implementation work ahead of other aspects. Firms should make sure they are prioritising appropriately, focusing on reducing the risk of poor consumer outcomes and assessing where they are likely to be furthest away from the requirements of the Duty.
Embedding the substantive requirements: Some plans FCA reviewed suggested firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate. FCA urge firms to carefully consider the substantive requirements of the Duty, as set out in our final rules and guidance. Firms should ensure that, when they are reviewing their products and services, communications and customer journeys, they identify and make the changes needed to meet the new standards.
Working with other firms: To implement the Duty on time, many firms need to work and share information with other firms in the distribution chain. However, FCA found some plans which gave little focus to this area. This suggests some firms may need to accelerate their work on this important aspect of implementation. Manufacturers have until the end of April 2023 to complete all reviews necessary to meet the four outcome rules and share information with distributors to allow them to meet their obligations.
FCA found that many of the plans they reviewed showed that firms have understood and embraced the shift to focus on consumer outcomes, established extensive programmes of work to embed the Duty, and are engaging with the substantive requirements, including the four outcome areas. However, they did also identify plans that suggested some firms may be further behind in their thinking and planning for the Duty. Smaller firms, often with fewer resources to dedicate to large scale projects, are likely to be even further behind in their planning for the Duty, bringing a risk that they may not be ready in time or may struggle to embed the Duty effectively throughout their business.
FCA have stated that they will soon be sending a survey to a sample of firms to help them understand the progress other firms are making in implementing the Duty and will also carry out targeted engagement with smaller firms. If this is a worrisome thought, we suggest using the FCA feedback and lessons learnt as an opportunity to re-focus (and adjust where needed) the firm’s existing programme of work to implement the Duty.
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