The Financial Conduct Authority (FCA) has published a review of how firms are planning to implement Consumer Duty, within which it has suggested areas of focus for firms to help with this implementation.
After the end of October 2022, the FCA requested and reviewed implementation plans from around 60 of the largest firms who have fixed supervisory teams, and who primarily operate in retail financial services markets.
In the multi-firm review, published today (24 January) the FCA found that many firms show they understand and embrace the shift to delivering good customer outcomes, and have established extensive programmes of work to comply with it properly.
However, it also found that some firms are further behind in their planning, so there is a risk that "they may struggle to apply the Duty effectively once the rules come into force," according to the FCA.
FCA executive director of consumers and competition Sheldon Mills said: "The Consumer Duty will bring about a step change in the way financial services firms treat their customers and we welcome the work firms are doing to implement it. Given the scale of the reform, we recognise that some firms need to make significant changes. For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new Duty.
"Firms will also see the benefits of the Duty, with increased trust in the sector, more flexibility to innovate and in time fewer rule changes."
The rules come into force on 31 July 2023 for new and existing products or services that are open to sale or renewal, and 31 July 2024 for closed products or services.
With six months to go before the Consumer Duty comes into force, the FCA highlighted areas it wants firms to particularly focus on:
• Prioritising: Firms should make sure they are prioritising effectively, with a focus on the areas that will make the biggest impact on outcomes for consumers.
• Making the changes needed: The FCA urges firms to ensure they are making the changes needed so consumers receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
• Working with other firms: Firms need to share information and work closely with their commercial partners to make sure they are all delivering good customer outcomes. The FCA has found that some firms need to accelerate this work to implement the Duty on time.
In the next few weeks, the FCA will be writing to firms, highlighting the key expectations in relation to implementation of the Duty and some of the key risks and consumer harms that need to be addressed. These letters will be published on the FCA website, it said.
The FCA will also be issuing a survey to over 600 mostly small and medium-sized firms to understand the progress they are making in implementing the Duty.
Additionally, the regulator added that it will carry out engagement with firms of all sizes, and continue to support firms through the transition, helping them embed the Duty effectively.
Quilter head of proposition specialists Roddy Munro said: "Today's multi-firm review from the FCA highlights just how seriously the regulator is taking the new Consumer Duty. It is a helpful document in that it not only sets out where improvements in implementation plans can be made, but also what is currently being assessed as best practice and where the industry needs to be setting its sights.
"Time is ticking in terms of getting processes and actions in place and this review highlights that as an industry we cannot take our foot off the gas."
Munro added that given the professionalisation of the advice industry in the last decade and an increasing focus on value, many would be in a good starting position.
"It is this value that is so important, and it should not be confused for price. Clients and their families will value different elements of advice at different points over their lifetimes. As such we cannot look at price in isolation, but as part of the wider picture when evidencing value to clients.
"This Duty, therefore, presses home the point of having quality data collection for each product and service and ensuring the correct metrics are in place in order to remain compliant. We cannot rest on our laurels that we do much of this already."
He added that the FCA had not been been overly prescriptive in what it is expecting, but "this should not be confused with a lack of certainty from the regulator".
"Indeed, detail and accountability are key. The regulator has flagged today that you must be clear about who is leading the programme, with clear timelines and information on how the Duty will be embedded within company culture."
Munro commented: "We have moved to an era of outcome-based regulation and as such providers and advisers need to take what they believe are the necessary steps to evidence good customer outcomes and fair value. This means doing a thorough gap analysis of the products and services you offer, assessing your client communications and creating a customer centric culture within your business.
"While these internal plans should be well advanced, it is necessary that providers and advisers do not silo themselves and leave themselves open to risk of third-party non-compliance."