With just weeks to go before the first Consumer Duty key date (to get an implementation plan in place and signed off by the board by the end of October) and the expected implementation date of July 2023 looming large, firms need to ensure they are not falling behind the curve.
Experience has shown us that it is never worth leaving the implementation of new rules until as close as possible to the final date. The foundation of Consumer Duty is a culture of putting the customer first. Importantly, the FCA won’t be looking for this process to begin in July 2023 but will expect firms to have that culture in place and embedded before July 2023.
The last consultation on Consumer Duty made clear what the FCA wants to achieve. Much of their work to date has been geared towards how firms react to harm, developing issues and regulatory requirements. The Duty itself represents a change in the UK’s regulatory framework with the ‘burden of proof’ shifting from the regulator to the firm. The ask will no longer be, ‘is there evidence that harm resulted from breaches or poor practices?’ It will be ‘show how harm has not occurred and that good customer outcomes are key.’
The Consumer Duty brings in new expectations, including the need to evidence good consumer outcomes are seen throughout the product lifecycle – from beginning to end – and although the size, complexity and nature of this will vary between different types of firms, it is likely to be complicated and expensively time consuming.
Firms should be well on their way now to making sure they understand what the Duty will look like for them. Good outcomes will be different for different customers, so being clear on what a good outcome is for your customers, against which firm actions can be measured, is non-negotiable.
The proposed rules provide a good foundation upon which to conduct an assessment of where your firm culture, practices and processes might need adjustments to meet the requirements; conducting a gap analysis sooner rather than later will allow for plans to be actioned and recommendations to be completed in time. IF YOU HAVE NOT UNDERTAKEN THIS YOU SHOULD DO SO NOW – OUR CONSULTANTS CAN HELP YOU.
The Consumer Duty is a set of different rules. Three elements – the Principle, cross-cutting rules and four outcomes – it covers expectations over just about every aspect of the way business is done, and together will give the FCA a clear picture of whether the firm is achieving good customer outcomes.
The analysis should test how well current processes meet the expectations across the elements of the Consumer Duty, but for some firms, a strong focus on a particular outcome might be necessary.
The importance of gap analysis and testing is paramount, and it should make it clear what element of the distribution chain they relate to.
Clear, fair and not misleading communications are constantly highlighted as an issue throughout the Consumer Duty.
The outcome of the gap analysis should be a clear set of identified areas for improvement and a set of recommendations. The nature of the Duty is the shifting of business practice into good outcomes for customers – this perspective should be applied across the board, with an action plan designed to move the firm in the right direction.
