Consumer Duty: Four months from the implementation deadline. Is your firm ready?

Written by Karen Latham

The implementation date for open products is fast approaching, with firms required to implement the rules for open products and services (those open to new sale or renewal) by end July 2023, and for closed books of business (those no longer on sale) by July 2024. Even closer is the interim milestone for manufacturers to complete all the necessary reviews on open products and services by April 2023. 

What are we hearing from the industry?

We have been at several events and conferences this year where the Consumer Duty has either been the focus topic or it has been a persistent subject raised in presentations and discussions.

It has been encouraging to hear firms’ attitudes to the Duty, not only in terms of their level of preparedness, but also how they are fully embracing the opportunity to put their customers at the heart of what they do. The forward-thinking firms have fully understood the benefits they can achieve by putting their customers first (and those are much wider than simply avoiding a rap from the regulator).

So, is there still a concern?

Shapes First regularly attends the relevant FCA webinars and also references and utilises the wealth of material the FCA produce on Consumer Duty. At a recent webinar, there were still questions arising as to whether a firm is impacted by the Duty, what the definition of ‘retail customer’ is, and what the FCA expectation is of monitoring that good outcomes are being delivered to consumers.

This would appear to indicate some firms have not fully understood the requirements of the Duty, nor have they equipped themselves with a viable implementation plan (which realistically they should be well on the way to delivering by now). Even more worryingly, they may not have considered the impact of the Consumer Duty on their firm, nor their obligations and the size of undertaking of the task at hand to ensure they will achieve compliance. The analysis, review of customer communications and building of the monitoring and management information required are all substantive pieces of work, not to mention embedment of updated processes and cultural change! The FCA themselves made it perfectly clear that the Duty is a step change for the industry and for consumer protection. 

One sense we felt from recent webinars and events was that there may still be firms who understand what they need to achieve, but do not know how to go about delivering the four outcomes of the Duty, or do not have the resources to do so.

The FCA has also recently sent portfolio letters to the CEOs of regulated firms across the industry reiterating the regulator’s expectations of firms. These letters set out some thematic industry-wide gaps and concerns, as well as specific areas of focus for each sector.

What have the FCA said about supervision?

In a recent webinar, the FCA made it clear that any engagement they have with firms on regulatory matters may well include a request for information about their Consumer Duty implementation, and that firms should have an expectation to provide the required evidential materials. These would include details of any issues that have arisen, how the firm has mitigated these to prevent further foreseeable harm, and how they are measuring whether their actions are in fact achieving good outcomes.

Other correspondence to firms has stated that firms must be able to explain actions taken to comply with the Duty on request. The FCA indicated priority will be given to serious misconduct that breaches the Consumer Duty, including action against firms posing a serious risk to customers.

How prepared is your firm?

Without going into the specific requirements of each Consumer Duty outcome, firms should be asking themselves some questions regarding their progress with the implementation:

• Do your governing body, executives and management fully understand the obligations of your firm to comply with the Duty, and the potential benefits of putting your customers at the heart of business decisions?

• Has Consumer Duty been embedded in the appropriate governance committees, do your committees have sufficient expertise and also availability of the associated management information?

• Is the governing body maintaining oversight of delivery to ensure you will meet the standards required by the Duty and within the deadline?

• Is your firm making the correct prioritisation decisions to ensure focus is on making the biggest impact on achieving good outcomes for consumers ahead of the July deadline?

• Are the key risks and dependencies for delivery of the implementation plan being actively managed?

• If your firm is a manufacturer, will you achieve the target of end-April to provide the relevant assessments to your distribution chain?

• Does the firm’s data strategy and implementation plan shape up to the challenge of supporting the Duty? Can you ensure proportionate management information and data are available to demonstrate monitoring of outcomes for consumers is achievable, including measures of potential harm?

Is your firm putting consumers at the heart of its business?

After all, we are all consumers, aren’t we? There are likely to be very few people who haven’t experienced a bad outcome from a financial services product or bad service from a financial services firm they bought a product or service from. Given our individual lived experience of these bad outcomes, surely most staff from Board-level down must understand why the FCA are placing such importance on this new regulation. 

Will your firm achieve compliance by July 31st, or are you short on delivery know-how (or time) to meet the deadline?

If you are interested in hearing more about how we can help you deliver or accelerate your Consumer Duty implementation we would love to have a discussion. We work with firms across several sectors who benefit from our knowledge, methods, tools and delivery experience to achieve success in delivering change. We can help you get it done with proportionality at the forefront of our minds.