The UK’s financial services regulator, the Financial Conduct Authority (FCA), has found that some firms may be “behind in their thinking and planning” for the Consumer Duty and risk not being ready for the end of July deadline.
It follows a review of the Consumer Duty implementation plans from larger firms operating in retail financial services markets and with a dedicated FCA supervision team, conducted at the end of October 2022.
The FCA acknowledged that many of the plans it reviewed showed that firms have “understood and embraced the shift to focus on consumer outcomes, established extensive programmes of work to embed the Duty, and are engaging with the substantive requirements”.
However, among those firms that are falling behind on their planning, the regulator saw instances where “it was not clear what the basis was for prioritising some implementation work ahead of other aspects”, and other plans where firms may have considered the requirements “superficially or are over-confident that their existing policies and processes will be adequate”.
Some plans lacked detail about who is responsible, overall, for leading the implementation of the Duty.
In one particular example, the FCA reported that there was no evidence of engagement with the firm’s chair or other non-executive directors, and the board “only asked one question before approving the plan”.
In another example, board minutes showed that the plan was approved “without discussion”.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The Consumer Duty will bring about a step change in the way financial services firms treat their customers and we welcome the work firms are doing to implement it. Given the scale of the reform, we recognise that some firms need to make significant changes.
“For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new Duty.”
He added: “Firms will also see the benefits of the Duty, with increased trust in the sector, more flexibility to innovate and, in time, fewer rule changes.”
The Consumer Duty rules come into force for new and existing products and services on 31 July this year, and for ‘closed’ products and services, on the same date in 2024.
Following its review of firms’ plans to comply with the Duty, FCA has urged firms to share information and work closely with their commercial partners to make sure they are all delivering good customer outcomes.
It has also called on firms to enact changes, where needed, to ensure consumers receive communications they can understand, as well as products and services that “meet their needs and offer fair value”.
The FCA has said it will continue to engage with firms where it has questions about their plans or approach.
It will also be surveying a sample of firms to help understand the progress they are making in implementing the new rules, with more targeted engagement planned for smaller firms.
During an Open Banking Expo Live Panel Debate, in association with Equifax, speakers discussed the impact of the new Consumer Duty on friction in Open Banking journeys. Watch it back here.