With implementation of the Consumer Duty almost here for open products and services, at this stage, firms' Consumer Duty programmes should be in the advanced stages. With the impact of the changes so significant, there is a lot to cover. Whilst certainly not exhaustive, this note explores five areas that firms should assure themselves they have robustly considered as they prepare for the 31 July 2023 deadline.
1. The letter as well as the spirit of the rule
First and foremost, firms should ensure that they can demonstrate compliance with the letter, as well as the spirit, of the rules. It is crucial that firms have evidence that the rules on a granular basis have been considered, and not just assuring themselves that they abide by the high level objectives that the Consumer Duty is seeking to achieve.
The FCA highlighted, as one of three key findings in its recent multi-firm work1, that it found that some firms had 'considered the requirements superficially' and urged firms to 'carefully consider the substantive requirements of the Duty'. The FCA went on to say that firms should review the 'substantive requirements set out in our final rules and guidance', 'identify where they fall short, and make the changes necessary to their products, communications, systems and processes to meet the Duty standard'1. The FCA will expect that this review is robust, and firms should, at this stage, be confirming that all elements of their programmes have been done in this way.
A good example of this is in the rules on fair value assessments2. Within the Handbook guidance, the FCA has identified examples of non-financial costs which firms should consider as part of a manufacturer's assessment of whether a product provides fair value; including the provision of personal data by customers, together with permissions to use that data. Firms should ensure that they have taken account of Handbook guidance such as this when seeking to comply with the rules themselves, as it is clearly relevant to all sectors, products and services that are provided to retail customers who are also 'consumers'.
2. FCA communications
As they dot the i's and cross the t's, firms should consider whether all FCA communications that are relevant and available to them have been taken on-board and changes made where appropriate. The FCA sent Dear CEO letters to a number of portfolios, has published its findings from its multi-firm review as well as from its review on fair value frameworks3, and more recently published '10 key questions for firms to consider'4 amongst other numerous communications. Outside of the more formal rules and guidance, the FCA will be expecting firms to consider the messages that it is sharing in this way, considering the findings and making changes where required.
Firms should track this feedback, and from a project governance perspective, ensure that actions are recorded and acted upon.
3. Data
The Consumer Duty means that firms have to understand and track the outcomes that their consumers are receiving, and it is the FCA's expectation that this is backed up with evidence. Whilst the sophistication of this will vary depending on a firm's size and scale, the FCA will expect the data sources that are available to a firm, and which track consumer outcomes, are utilised as much as they can be. In point 11.33 of its Finalised Guidance5 , the FCA details some examples of types of information firms may want to collect.
Review of this data, with clear escalation triggers and senior oversight, will be important to demonstrate to the FCA that a firm knows what outcomes it is creating. Firms should be ensuring that this is in place ready for 31 July.
Many firms are working with third parties to help them evidence 'good' customer outcomes beyond 31 July, by obtaining real-world customer feedback across data points. However, this is not only a post-implementation action point. For example, firms should, where possible be testing changes to customer communications and contractual terms before release to consider the extent to which consumer understanding is achieved in practice.
4. Internal communications and training
Ahead of 31 July, firms should ensure that all impacted staff are aware of the changes, what it means for them and how they perform their roles. The Consumer Duty brings in a sixth Conduct Rule: a requirement for in-scope staff to 'act to deliver good outcomes for retail customers', and as well as the broader requirements that the Consumer Duty brings in, in-scope staff should be trained and be well-aware of this Conduct Rule ahead of 31 July.
The FCA's multi-firm review outlines some good examples, including 'all-staff and role-tailored training, internal communication campaigns and awareness-raising through company town hall meetings' with one firm delivering 'interactive training on the Duty to its board'1. Other examples the FCA refer to are firms updating internal materials to align with the basis of the Consumer Duty. Firms should consider whether there is anything additional that they should be doing to raise internal awareness over the next few weeks.
5. Assurance work post-31 July
As firms move to business-as-usual in respect of their Consumer Duty compliance for on-sale products and services from August 2023, it would be prudent for a post-implementation review to occur at a later stage. This will enable any issues to be identified promptly, learnings to be incorporated into processes, systems and controls, as well as being able to demonstrate to the FCA the significance that the firm places on the Consumer Duty.
Footnotes
1. Consumer Duty implementation plans | FCA
2. PRIN 2A.4 Consumer Duty: retail customer outcome on price and value - FCA Handbook
3. Consumer Duty: Findings from our review of fair value frameworks | FCA
4. One month to go for the Consumer Duty | FCA
5. FG22/5: Final non-Handbook Guidance for firms on the Consumer Duty (fca.org.uk)
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