FCA review of Consumer Duty implementation plans – the good and the bad

The FCA’s review of firms’ progress on implementing the Consumer Duty contains some important guidance for firms to follow in the lead up to 31 July 2023.

Key areas to focus on

Effective prioritisation – firms need to prioritise appropriately, focussing on reducing the risk of poor consumer outcomes and assessing areas where firms are furthest away from meeting the Duty.
Examine the substantive requirements of the Duty carefully and avoid over-confidence that existing procedures are sufficient – the scope of the Duty is extensive and we have seen that careful review of the new rules and definitions can lead to some surprising conclusions.
Work with other firms in the distribution chain – the FCA notes a lack of engagement to date between firms in distribution chains and suggests that this should become an area of focus. In our experience, this includes working with overseas firms that are not themselves authorised in the UK but can affect the ability of UK firms to meet their obligations under the Duty.

The good and the bad…

Below are headline summaries of a selection from the FCA’s list of good and bad examples. There is a lot of content in the FCA’s review, so we recommend reading it in full.

We would be happy to discuss your organisation’s implementation of the Duty, and how the FCA’s review may help inform it.

 
Good practices
Bad practices

Governance

Ensure scrutiny of implementation work – by board, executive, risk and audit.
Appoint CD Champion (comment: FCA’s comments suggest they see this as effectively a requirement, albeit with some flexibility for firms to implement as they see fit.)
Organise one-to-one deep dive sessions with board members on plan deliverables.

Slow in appointing CD Champion and sharing the role across the entire board / executive.
Limited evidence of challenge by the Board.
Lack of: detail on leadership of programme; board and committee scrutiny; timeframes for progress updates; and summary opinion from risk, compliance or internal audit.

Culture and people

People and training programmes e.g. all-staff and role-tailored training; internal communications campaigns; town halls; interactive board training.
Review reward and incentive structures and performance management frameworks.

Lack of detail on tangible, practical action points (comment: culture is an area of the Duty where our clients tend to have lots of questions; think practically about what programmes could work for your firm).

Deliverability

Establish, prioritise and map key deliverables and milestones + consider alignment with other ongoing initiatives (e.g. vulnerable customers) + identify key delivery risks.
Adopt a parallel (not sequential) approach to workstream implementation.

Unclear timelines + confused sequencing.
Lack of resource planning + lack of proposed solutions to anticipated resource shortages.

Third parties

Engage with other firms in the distribution chain and outsource service providers.
Identify any contracts which may need renegotiating.

No identification of key third party relationships or nature of dependencies.

Four CD outcomes

Products and services: One interesting example was the development of  a product-level management dashboard to measure product performance.
Price and value: Conduct a full value chain analysis + improve fair value / product pricing frameworks.
Consumer understanding: Actions could include simplifying T&C language + improving call centre scripts.
Consumer support: Actions could include shortening call waiting times + widening support channels.

Plans are too high-level – granularity is a must.
Complacency about adequacy of past work + current frameworks.
Lack of methodology for reviews and gap analyses to assess products, services, communications, customer journeys vs. the Duty.
Lack of clarity around amending existing assessment frameworks to meet the Duty.

Data strategies

Identify necessary data for measuring / monitoring compliance with the Duty.
Set short- and  long-term strategy to improve data collection.

Firms assuming they can ‘get by’ with repackaging / supplementing existing data.

Next steps

The FCA’s review follows publication of its final rules and guidance in July 2022. Firms were expected to have their implementation plans in place by October 2022. Below are some key upcoming dates to note:

Soon: FCA to send survey to sample of firms to assess progress + FCA to conduct targeted engagement with smaller firms + FCA to issue letters to firms, highlighting expectations, key risks and consumer harms.
April 2023: Manufacturers to complete all reviews necessary to meet the four outcome rules + share information with distributors.
To July 2023: Second half of the implementation period.
31 July 2023: Rules apply regarding new and existing products/services open to sale or renewal.
31 July 2024: Rules apply regarding closed products/services.