Are you ready for the Consumer Duty? 10 tips from our Readiness Roundtable

Financial services firms in the UK have until 31st July to implement the new Consumer Duty rules from the Financial Conduct Authority (FCA). fscom’s experts recently held a roundtable discussion with representatives from financial institutions to understand how their preparations are going and address any concerns they have as the deadline approaches.

In this blog, we summarise the main issues and priorities which firms reported they are dealing with. We then share 10 tips for firms to think about or action, in order to support with the successful implementation of the Consumer Duty rules and to ensure that they protect consumers from harm.

Priorities for the Consumer Duty

The FCA’s Consumer Duty aims to “set higher expectations for the standard of care firms give consumers” by requiring firms to act to deliver “good outcomes” for their retail customers. It introduces a consumer principle and detailed rules which we covered recently in another blog post – but, in essence, it requires firms to demonstrate that they are putting their customers’ interests first.

The Duty is part of the regulator’s drive towards consumer protection, which has accelerated since external shocks like the impact of Covid-19 and the cost-of-living crisis. By 31 July, the rules will apply to “new and existing products and services that are open to sale or renewal”. The scope will then expand a year later to include closed products or services.

At the roundtable event, participants discussed the activities they are focused on ahead of the deadline. Companies reported different levels of progress on implementation, as well as different levels of confidence in meeting the deadline. The challenges they identified included:

  • Developing pricing strategies
  • Allocating sufficient development time to build and test where changes are necessary for reporting
  • Ensuring compliance with the rules without disrupting the current user experience
  • Securing buy-in from the company’s management and Board.

Firms also reported that the crucial steps they need to take ahead of the deadline include:

  • Mapping the requirements of the Duty
  • Gathering data
  • Leveraging available information
  • Implementing data-driven processes, such as workshops, controls, surveys and mystery shopper tests.

While deadlines need to be met, it was agreed that firms should not view 31st July as the end point of their consumer protection work, but continue to evolve their compliance practices over time. It was recommended that firms embed the principles of the Duty into their organisation’s culture and the way they monitor their activities and compliance.

The Duty has a wide application to all financial institutions whose products or services serve retail customers. While there had been speculation on whether some companies would stop serving customers to avoid the new obligations, we are not aware of firms taking this route. Preparing for implementation should therefore be high on the agenda of a significant number of financial services firms.

10 tips for successfully implementing the Duty

From the discussion at the roundtable, we have pulled out the following tips to support firms with implementation ahead of the deadline:

1. Don’t reinvent the wheel

The Duty should ideally formalise and document existing practices, not invent them from scratch.

2. Assign responsibility

It is important to find the appropriate balance for where the Duty lies, between the first line (business units), second line (compliance function) and the Board. For example, the first line may be responsible for product development, whilst the second line would be responsible for ensuring that the controls in place are compliant and fit-for-purpose.

3. Assess fair value

The Duty requires products and services to be priced at a “fair value” for consumers, but how do companies measure this? Solutions offered at the roundtable included benchmarking against competitors; identifying profit margins; and seeking informal feedback from the sales team. It is important to have precise assessment criteria and access to comprehensive data to evaluate fair value.

4. Monitor products and services

Continuous monitoring is required to ensure products and services deliver good outcomes for consumers. Metrics such as customer satisfaction, response times, and access to support channels will help to identify areas for improvement and corrective action. Other data sources might include market research with current, prospective and former clients; a trusted data platform; and customer complaints and feedback data.

5. Define good outcomes

“Good outcomes” for customers are mandated by the FCA, but companies need to interpret what that means regarding their products and services. They should start by identifying what a bad outcome for their consumers looks like, and work backwards from there to ensure these are avoided.

6. Focus on product development and approval

Participants agreed that a robust product development and approval framework is essential to complying with the Duty. This ensures products and services are designed from the start with the interests of consumers in mind.

7. Choose your Consumer Champion

At the roundtable, it was observed that the regulator prefers firms to nominate a single consumer champion to avoid responsibility for consumer protection being diluted. Ideally, this would be a Non-Executive Director on the Board. Firms should also consider holding regular working groups and monthly meetings and use the onboarding process to ensure staff are prioritising consumers.

8. Agree metrics for reporting

There are many possible indicators of whether consumers are being protected which can be used for reports to the regulator. Firms should gather information on customer complaints, trend analysis, response times to information requests, incidents and downtime, client surveys, and operational resilience throughout the customer journey.

9. Collaborate and share information

Collaboration and information sharing is vital to satisfying the FCA’s expectations. Firms reported that they are actively engaging with product designers, marketing teams and other relevant groups to obtain the information required for compliance.

10. Consider the Duty’s application to group structures

If a company is part of a group structure, they should decide whether controls should be applied at the group level or on a regional level. Participants emphasised the need to apply consistency and alignment across all entities within the group.

We are a firm of deep domain experts who specialise in the payments and e-money, crypto, retail banking, asset management and trading and broking sectors.

Our senior team is a unique mix of experienced consultants, ex-regulators, ex-bankers and former in-house compliance experts who hold senior positions with leading compliance related industry associations and provide our clients with in-depth regulatory insight and industry best practice in all areas of financial services regulation to include authorisation, audit, financial crime, cyber security, and regulatory due diligence. 

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