Countdown to Consumer Duty

Often in the first months of a new year, we like to speculate about what the key Compliance themes for the coming year will be. The publication of the FCA’s Further Consultation Paper on Consumer Duty in December means that there’s no need for prognostication right now – we can be sure that the new Consumer Duty approach is going to dominate GRC conversation for the next 12 months.

This paper follows the May 2021 consultation in which they first proposed serious changes affecting all Financial Services firms with “retail clients”. It goes without saying, that includes a very large percentage of all FS businesses, and the package of proposed rules constitutes one of the bigger regulatory shake-ups of recent years.

The overall goal on the FCA’s part? To set a higher expectation for the standard of care that businesses provide to their customers. Businesses have previously needed to work to rules and principles relating to treating customers fairly, but the Consumer Duty changes go beyond that, aiming to eliminate practices that cause harm to consumers, such as presenting information about products in a confusing way which is difficult for the average customer to understand.

Consumer Duty aims to tackle this through three central components. First, the Consumer Principle, representing the FCA’s overall standards of behaviour. In the most recent publication the FCA is considering between two different wordings on this – either “a firm must act in the best interests of retail clients” or “a firm must act to deliver good outcomes for retail clients”.

Second, the “Cross-Cutting Rules”, which require businesses to take all reasonable steps to avoid foreseeable harm to customers, to act in good faith and to take all reasonable steps to enable customers to pursue their financial objectives.

Third, a more detailed set of rules which will establish expectations for an organisation’s conduct in relation to four outcomes: Communications, Products & Services, Customer Service and Price & Value.

At a big picture level, the most significant change here is the move to outcome-based regulation. The FCA will be looking at what a firm is doing and the end result on customers, and businesses will need to prove they’re meeting new requirements at every step of the customer journey, all the way to successful outcomes. The scope and density of the new rule set gives businesses a significant amount of work to do ahead of the April 2023 implementation deadline.

Many businesses are of course already prioritising customers, providing excellent services, products and outcomes, but they will now need to document and evidence this in new ways. The FCA is taking input on the proposals until February 15th and aiming to publish any final revisions to the rules on July 31st. I think we already have a good understanding of what these will look like and are looking forward to further discussions with Financial Services thought leaders in our forthcoming Virtual Roundtable, taking place in March.

If you’re interested in participating please do get in touch today on 01216432100 or selena@kindconsultancy.com.