FCA on Consumer Duty – “Get on with it!” (Updated)
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Update from the FCA – the velvet glove goes back on
Following on from the FCA’s warning of 25th January that firms needed to ramp up their preparations for the incoming Consumer Duty, on the 3rd of February the regulator has provided a package of advice tailored to specific sectors in the form of a series of letters. This will help to provide direction to those firms that are falling behind in their preparations for Consumer Duty, although there is still much work to be done.
The letters provide timelines, clarify requirements, give compliance expectations, and address issues that are likely to arise in specific sectors (e.g., credit providers are warned about cost-of-living scenarios for consumers).
This advice comes in the form of letters addressed to specific sectors. The FCA is also running events until June ‘specifically tailored to the needs of small and medium sized firms’ to help with the process of building Consumer Duty compliance.
Already published are letters aimed at these sectors:
Asset Management, custody and fund services, and alternatives; consumer investments; credit reference agencies and providers of credit information services; general insurance and pure protection firms; life insurance; mainstream consumer credit lenders; mortgage lenders and administrators; retail banks and building societies.
The FCA will shortly publish letters to the following sectors:
Credit unions; Debt advice firms; debt purchasers, debt collectors, and debt administrators; mortgage intermediaries; motor finance providers; payments services and e-money; retail finance providers; credit brokers.
Original post – 31st January 2023
The Financial Conduct Authority has issued a warning that firms must speed up their implementation of new Consumer Duty requirements. While some preparation has occurred, the overall message is that the FCA expects firms to do more, do it faster, and do it better.
The FCA conducted a review of firms’ preparations for the upcoming 31st July 2023 deadline for new/existing products/services open for sale/renewal. Closed products or services have until 31st July 2024 – this refers to situations where the transaction with the customer has been completed, but firms continue to communicate with customers (e.g., on the performance of funds, continuation of plans etc.).
The regulator does emphasise that many firms are already advanced in their preparations, with ‘many’ plans showing that firms have understood the basics of Consumer Duty, ‘and are engaging with the substantive requirements’.
However, there are still significant concerns. Six months is a blink of an eye when you’re instituting wholesale cultural changes in a firm, especially if these consumer duty requirements involve comprehensive rewriting of KIDS (Key information documents), PRIIPS (packaged retail investment and insurance products), staff training, and holding focus groups to ensure that language and policies are understood by retail consumers. The FCA’s review mentions that some firms ‘may not be ready in time’ or ‘may struggle to embed the Duty effectively’, with unclear or poorly prioritised plans. The review was especially concerned about how firms were tackling the substantive requirements of the Duty – especially as manufacturers and distributors have an interim deadline this April for completing substantive requirements.
The practicalities are relatively non-prescriptive, but the lack of provided structure means that firms cannot just comply with the letter of the law – instead they need to interpret the Consumer Duty as it applies to their own circumstances and customer base. The new Consumer Duty is designed to be antagonistic to firms attempting to carry out a tick box exercise. Instead, firms are expected to have drawn up their own structures, identified key staff, and developed the expected customer-prioritisation culture. The FCA also expects firms to work with their commercial partners to reduce the workload of planning Consumer Duty structures and ensure that supply chains, joint products etc. are on the same page, but has seen little evidence of this so far.
Sheldon Mills, the FCA’s Executive Director of Consumers and Competition, said that some firms are further behind than others, but ‘there is time to put that right and for them to show they are acting in the spirit of the new Duty’.
This statement could be taken as a gentle admonishment or a shot across the bows depending on a firm’s state of readiness for Consumer Duty. The overall tenor of the letter represents the degree of seriousness and the centrality of the new Consumer Duty as it impacts multiple regulations.
For those interested (and you all should be), the FCA has published its rules and guidance in full.Contact Us