FCA new Consumer Duty

The wait is over: Consumer Duty comes into force

The FCA’s new Consumer Duty came into force on 31 July 2023 for new and existing products and services that are open for sale or renewal. 

The Consumer Duty is a cornerstone of the FCA’s three-year strategy, setting higher standards of care. It is being prioritised at every level of the FCA and will drive the FCA’s supervision strategies and prioritisation.  

The FCA expects good outcomes for customers to be at the heart of firms’ strategies and business objectives. Leaders have a key role to play here. Firms’ boards and senior management should embed the interests of customers into the culture and purpose of the firm.

With a significant shift in the FCA’s expectations, firms can expect their implementation projects to come under real scrutiny in the coming months. 

What does the FCA want to see?

The FCA wants to see firms that: 

• give fair value;
• ensure customers don’t face unreasonable barriers when they want to switch or cancel products or complain;
• avoid exploitation of behavioural biases;
• provide helpful and accessible customer support;
• take appropriate action to mitigate the risk of actual or foreseeable harm;
• provide timely and clear information about products and services that customers can understand so they can make good financial decisions;
• provide products and services that are right for their customers; and
• focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction.

What should I focus on now with only a couple of weeks to go?

The FCA has set out ten key questions for firms to consider to ensure they are focusing on the right things at this stage in the implementation process.  

The FCA has also said that any firms struggling to complete all the work required before the deadline should prioritise action that will most improve consumer outcomes and reduce risks of harm. 

Firms should look to the Consumer Duty Portfolio Letters. The Annexes to the letters set out the key areas for firms in each sector, so do make sure you’ve been through those relevant to you and ticked each one off.

Creating a clear audit trail will be crucial. The Duty holds individuals personally responsible for meeting the FCA’s expectations, so there will need to be a clear record of decision making and discussions and of every step taken to implement the Duty. The FCA’s attention, initially, will be on the adequacy of the implementation process that firms undertook in the lead up to the Duty coming into force.

What will the FCA look at first?

Firms should expect the FCA to take action against firms who fail to comply with the Duty, even during the very early stages of it coming into force. The FCA has said it will prioritise the most serious breaches and act swiftly and assertively where it finds evidence of risk of harm to consumers. We can expect increased intervention by FCA Supervision, imposing requirements on firms and restricting lines of business until firms are able to satisfy the FCA of their compliance.

We know the FCA intends to focus from the beginning on the quality of data and MI being produced by firms on consumer outcomes. It is therefore crucial that firms can evidence what they consider good outcomes look like for customers and why; the role they play in achieving these outcomes; and how they are acting to monitor this going forward.

The FCA plans to invest £5.3m in the Consumer Duty to ensure it is ‘embedded effectively’. It is investing heavily in data analytics to determine which firms in particular sectors and portfolios are delivering good outcomes for consumers. The FCA is likely to request additional data from firms to measure progress at the portfolio and sector level. For some sectors, programmes of ongoing supervisory work have already been announced. We expect more to follow in the second part of the year.

CMS Financial Services Regulation Bitesize Briefings – The new Consumer Duty

Introducing our Consumer Duty webinar series, designed to provide you with a deeper understanding of the FCA's expectations and prepare you for a seamless implementation.