The letters ask senior management to prioritise implementing the Duty.

By David Berman, Nicola Higgs, Rob Moulton, Becky Critchley, Ella McGinn, Jaime O’Connell, and Dianne Bell

On 3 February 2023, the FCA published Dear CEO/Director letters underscoring the immediate (i.e., during the implementation period up until 31 July 2023) and longer-term expectations, priorities, and demands under the Consumer Duty. For further information, see Latham’s recent blog on the FCA’s multi-firm review summarising areas of improvement for firms’ implementation plans.

Sector Scope

The FCA has issued the letters to CEOs/Directors in the following sectors:

  • Asset Management, Custody & 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 contents of these letters are tailored to the particular sector. The FCA plans to publish further letters “very shortly” for other sectors such as mortgage intermediaries, motor finance providers, payments and e-money, retail finance providers, and credit brokers.

Senior Management’s Key Role

These letters have been expected. Although much of the content summarises the requirements and expectations under the Duty which appeared in several earlier communications to assist firms with compliant implementation, senior management should still read their particular sector letter(s) carefully.[1] 

The FCA repeats its message: “leaders have a key role to play here”. For example, the letter to the Retail Banks and Building Societies sector (Dear CEO letter) contains the Principle 11 reminder that firms need to notify the regulator if they “foresee there will be areas of their business which will not be materially compliant with the Duty by the deadline” (emphasis added). Senior management should note that the FCA expects the Duty “to be a top priority for you personally”. Boards and senior management must ensure they embed “the interests of customers into the culture and purpose of the firm”.

Recipients should discuss this letter with fellow directors, the Board, and the Consumer Duty champion to agree which further action the firm should take to meet the requirements and expectations. The content sets out how the duty applies to Retail Banks and Building Societies and also highlights three areas involving the cost-of-living challenges that senior management should reflect on:

  • Even though the Duty has not yet taken effect, firms should be “stepping up now” to support customers in financial difficulty.
  • On questions of price and value, which the Duty now brings “sharply into focus”, firms should expect a different response than previously where the FCA made little or no intervention. The FCA has enhanced its interest into requirements of fair value and therefore expects rigorous and balanced analysis to support firms’ assessment of fair value.
  • The treatment of SMEs also generates enhanced regulatory interest.

FCA’s Overall Message: Do Not Be Complacent

The FCA asks firms not to underestimate the new requirements of the Duty. This letter repeats a number of the practice points contained in last week’s FCA multi-firm review (see Latham’s blog) and contains detailed annexes of requirements and considerations. It highlights risk areas where the FCA believes firms might underestimate the Duty’s demands, or overestimate their business’ or culture’s ability to meet its standards.

Taking a fresh look is also helpful. For example, under the important area of adequately assessing the extent of data needs associated with the Duty, the FCA urges all firms to “think deeply and afresh about the types and granularity of data they need to monitor and evidence outcomes…and drive further improvements in customers’ experience” (emphasis added).

Next Steps

These letters emphasise that the FCA regards the Consumer Duty as a “cornerstone” of its strategy and work between now and 2025. It states that the Duty “is being prioritised at every level of the FCA, from the Board down, and it will drive our supervision strategies and prioritisation”.  Larger firms in the retail bank sector should expect to regularly share updates on their implementation progress and their internal governance papers with supervisors, as well as supervisors challenging them.

Some of the next supervisory steps include:

  • From April 2023: the supervisory focus will likely be on products, services set out in Annex 2 of the letter and involve a sample of firms detailing their implementation work and specific instances of gap analyses (products, services, and customer journeys).
  • From September 2023: a sample of firms will need to demonstrate changes to their baselining and gap analyses, including corrections and remedies, instances where the analysis showed they already met the Duty, and the enhanced data, indicators, and dashboards firms “should by then be starting to use to monitor customer outcomes”.
  • From January 2024: a sample of firms will need to show what their enhanced outcome-focused data and dashboards now indicate about customer outcomes, and whether these outcomes are “consistently” meeting the Duty.

The FCA is working with an external research agency and will soon be distributing a short survey to a sample of firms regarding how firms are progressing in implementing the Duty.


[1] Depending on their activities, more than one letter might apply to senior management.