The FCA has reviewed firms’ progress to embed the Duty into their businesses, providing good and poor practice examples for firms to improve and direct their implementation work.
The Consumer Duty (Duty) rules (as set out under the FCA’s Policy Paper (PS22/9) and guidance document FG22/5) come into force at the end of July 2023. On 25 January 2023, the FCA published feedback on firms’ current implementation progress via its Multi-firm review: Consumer Duty Implementation Plans. While the FCA notes a number of positives, the overall impression is that firms need to do more and do it quickly.
Whilst the review is based on those firms that primarily operate in retail financial services markets, all firms should take note of the FCA’s feedback, record this consideration (for example via a gap analysis against their current plans), and factor it into their current implementation plans (referred to as “plans” below) and documentation. Firms’ boards (or equivalent management body) were expected to approve the plans by the end of October 2022 under PS22/9, and be able to evidence that they have challenged the plans to ensure they are deliverable and meet the new standards. The FCA is particularly focussed on asking firms for documentary evidence of implementation. Firms should therefore expect the FCA to ask to see plans and scoping results, and should ensure that they are fit for this purpose.
The FCA will continue to support firms in their implementation work in the run-up to the July 2023 implementation deadline by:
- engaging with the firms that took part in this review and answered questions about their plans or approach;
- conducting a survey to a sample of firms to understand progress and some targeted engagement with smaller firms;
- writing to firms to convey the FCA’s key expectations and raising key risks in particular sectors; and
- continuing in its communications on the Duty and providing updates on its webpage.
Boards’ Focus and Areas to Challenge (January to 31 July 2023)
The FCA asks firms’ boards and management bodies to particularly focus on the following three key areas and to raise challenges, in addition to considering the review’s wider “key findings”:
- Effective prioritisation: plans need to clarify why they will prioritise some implementation work ahead of others. Prioritising needs to focus on reducing the risk of poor consumer outcomes. Firms should assess where they likely are “furthest away from the requirements of the Duty”.
- Embedding the substantive requirements: some plans indicated that firms may have considered the requirements “superficially” or firms are “over-confident” that their existing policies and processes will be adequate. The FCA is urging firms to “carefully consider the substantive requirements of the Duty” contained in both the rules and guidance. They need to ensure that when they conduct their reviews (of products, services, communications, and customer journeys) they identify and make the changes needed to meet the new standards.
- Working with other firms: many firms will need to work with and share information with other firms in the distribution chain. However, some firms have not sufficiently focused on this area and need to accelerate their work on this important aspect of implementation.
Many firms’ plans showed that they understand and embrace the shift to delivering good customer outcomes as required by the Duty, and have established extensive work programmes. However, the FCA identified some firms as lagging behind in their thinking and planning, which indicates that they may not be ready by 31 July 2023 or may struggle to properly embed the necessary changes into their business.
Those firms hoping for more clarity on the FCA’s expectations regarding the key areas of price and value, vulnerability, and MI will be disappointed. While the key findings can form a project checklist to assess how firms are progressing against peers, firms should view both the review centred on retail markets and the findings through the lens of a firm substantively in scope of the Duty. Wholesale firms, for example, will largely be taking a more proportionate approach.
The overarching theme of the review is demonstrability. Firms will need to be able to demonstrate they have substantively engaged with the requirements of the Duty, which practice translates into a detailed gap analysis. However, demonstrating engagement alone is not enough; firms will need to be able to evidence discussions, challenge, and decisions at all stages of the implementation in order to prove to the regulator that they took action at all stages of the project to deliver good customer outcomes.
The following is a checklist for firms to review internally based on the FCA’s key observations:
Governance and Oversight: Senior leaders in firms need to drive the changes.
- Does the plan include clear executive accountability for delivery and board oversight?
- Have firms’ boards, executives, and their audit and risk functions scrutinised and challenged plans? Have they adequately recorded this scrutiny?
- Have plans outlined clear arrangements for ongoing scrutiny of their firms’ implementation work by the board, executive, and their audit and risk functions?
- Have risk and compliance and internal audit teams been involved in the plans and provided, for example:
- their frank assessments of current risks to successful and timely delivery
- assurance of the effectiveness of controls in place over Duty implementation
- planned assurance work before the deadline on implementation, with immediate and further assurance work planned after the deadline?
Culture and People: Good customer outcome is the central focus.
- Does the plan set out a clear people and training approach to ensure all staff understand their responsibilities under the Duty?
- Does the plan consider updating internal cultural and training materials to reflect the Duty as appropriate?
- Does the plan detail tangible action the firm will take to embed the Duty in its strategy, governance structure, and decision making, including, as appropriate, reward and incentive structures and performance management frameworks?
Deliverability: Clear workstreams, resource planning, and sensible prioritisation should be set out.
- Does the plan set out key workstreams, mapping the milestones needed to realistically meet the implementation deadline?
- Does the plan involve committed resource that matches the scale of uplift and challenges when implementing the Duty?
- Does the plan set out the firm’s approach to prioritise or triage implementation work?
- Does the plan indicate the number or proportion of covered products, services, communications, and customer journeys?
- Does the plan clearly set out risks and internal and external dependencies?
Third-party providers: Firms should identify and work together with third-party distributors and providers.
- Does the plan set out any implementation dependencies with third-party providers?
- Does the plan identify what, if any, engagement had taken place or is planned with relevant third parties?
Four outcomes: Avoid “high-level” approach and address substantive Duty rules/guidance.
- Does the plan address how the firm will define good customer outcomes in the context of its business and how to deliver them through improvements to products and services, communications, and support?
- Does the plan identify areas that need to build on existing product governance and assessment frameworks to meet the new requirements under the Duty?
- Does the plan evidence engagement with the substantive requirements of the Duty and indicate how firms have interpreted the Duty’s requirements?
Data strategies: Key to evidencing good consumer outcomes is assessing, testing, understanding, and evidencing the outcomes customers are receiving.
- Does the plan consider the data needed to measure and monitor the delivery of the Duty outcomes?
- Does the plan outline the work undertaken to understand the data and metrics available across the businesses and set out plans to bring these together?
- Whilst firms can repackage existing data, does the plan record the consideration of gaps or the outcomes it should monitor?
- Does the plan outline how the firm will monitor outcomes for different groups of customers, including those in vulnerable circumstances?