As we race towards 2024, the Consumer Duty (the Duty) implementation date for the active book (31st July ’23) seems far behind us. But the question that firms should be asking themselves – is it really behind us? We think not, nor does the FCA.
As Nisha Arora, Director of Cross Cutting Policy and Strategy, the FCA highlights in her recent speech – the Duty is not a ‘once and done’ exercise as from now on firms will proactively need to consider the Duty in every aspect of their product, and service offerings for customers.
This point was further clarified in the FCA’s latest webinar highlighting that the Duty is more than just a compliance exercise. The task of embedding the Duty is an ongoing one to continue with the momentum of delivering good outcomes for customers and promoting healthy competition and innovation in the industry.
Firms that fail to realise and act on this will not only risk regulatory intervention but will also be left behind by market competition as other players outperform, impacting revenues and profitability in the long run.
So, how should firms be embedding the Duty from here on -
1. By staying true to the implementation plan submitted in Oct 2022
From our experience, there is still carry-over work to do from day 1. It is a combination of changes that couldn’t be completed by the due date (31st of July 2023) and new requirements that emerged whilst digging deeper into the rules. This is the baseline version that firms must achieve to allow themselves a level playing field before propelling forward.
From 31 July 2024, the Duty will also be effective for closed products and services, but there will be differences in how some elements of the Duty apply. Unlike the active book, firms will need to focus on reducing any foreseeable harm to the customer and making sure the right kind of ‘Customer Support’ is available. However, firms are not expected to consider the target market and distribution strategy for products that are no longer on sale.
2. By regularly assessing compliance with the Duty
The regulation requires firms to assess their customer outcomes continually and report on them at least once a year starting from July 2024. This assessment will be part of the evidence to assess a firm’s ongoing compliance with the Duty. It is, therefore, essential for firms to start thinking about testing and monitoring customer outcomes based on relevant data and MI. The results of this will feed into the Consumer Duty assessment report outlining if the products and services are delivering expected outcomes in line with the Duty - and any evidence of poor outcomes.
Most importantly, before signing off this annual report, “…the board needs to agree the actions required to address any identified risks or poor outcomes...”, says the FCA, which brings us to the crucial point of shifting the mindset.
3. By shifting the mindset
Given the wide scope and overlaps with various other regulations, it is evident that Consumer Duty is more than just another regulation. It is the regulator’s central theme which requires a permanent shift in mindset. So, to meet these requirements as well as to avoid falling into the vicious cycle of correcting poor outcomes annually, firms must embed the Duty into their culture and purpose reflected in their strategy, governance, leadership, and people policies. In doing so they will be able to stay focused on delivering good outcomes and reducing foreseeable harm for the customer by design.
The Duty is part of the FCA’s 3-year strategy to for regulating retail conduct, it is high time firms welcomed it into their strategy as the Duty is here to stay.
