Consumer Duty Implementation Plans: FCA highlights areas of focus for firms

The Financial Conduct Authority (FCA) has published findings from its multi-firm review of implementation plans of larger firms. The FCA hopes this will help firms understand its expectations and implement the Consumer Duty (Duty) more effectively. Firms should take into account the FCA’s findings when further developing their implementation plans. 

Whilst the FCA found that many of the firm plans showed that the firm understood and embraced the shift in mindset to achieving good consumer outcomes, some firms are further behind in their thinking and planning for the Duty. 

See here for the FCA’s Multi-firm review: Consumer Duty implementation plans.

 

Three key areas of focus

The FCA wants three key areas over the remaining 6 months of the implementation period (ends 31 July 2023):

• Effective Prioritisation - focus on the areas that will make the biggest impact on consumer outcomes, e.g. assessing which areas of the business are likely to be furthest away from the requirements of the Duty.

• Embedding the substantive requirements – make changes that are needed, e.g. do not just consider the requirements superficially or be overly confident that existing policies and processes will be adequate.

• Working with other firms – work with your commercial partners/other firms in your distribution chain.

 

Six focus points - examples of good practice and areas for improvement

The FCA reviewed the plans against a range of different factors and have identified ‘good practice’ (positive examples found) and areas for improvement for each of these.   Firms should review and reflect on these examples to ensure they are actioning the FCA’s latest observations.

For example:

• Governance and Oversight – the FCA found that in some plans it was not clear who is leading (and is responsible for) the overall implementation programme or who is leading the various workstreams. There was also limited evidence that senior management was scrutinising and challenging some of the plans. Some firms were slow to appoint a Consumer Duty board champion and the FCA does not accept the sharing of the role across the whole board..

• Culture and People - the FCA found positives in plans that set out a clear approach to training; which explains the firm’s purpose and value in a way that is aligned with delivering good consumer outcomes; and integrating the Duty into their staff performance scorecard.

• Deliverability – an example of good practice was a plan which clearly mapped workstreams against the structure and requirements of the Duty and which had a clear breakdown of deliverables, milestones, target completion dates, and a framework for tracking progress.

• Third parties – it is essential for firms to work together across distribution chains to deliver good outcomes for the end retail customer. Plans that did not specifically identify key party relationships, the nature of any dependency, and/or the impact engagement with third parties had on their plan timetable, were in need of improvement.

• The four consumer outcomes – the FCA found positive aspects of firms’ plans under each of the four outcomes, for example paying particular attention to making sure that there are no hidden or unexpected costs for customers or recognising that a particular pricing structure may need to change to address an identified issue with high fees. However, the FCA has also found that some plans were too high-level and so included limited evidence on how firms would engage with the substantive requirements of the Duty – it is not sufficient to say that the firm will review policies without indicating how firms have interpreted the requirements and considered the challenges of how they will apply them to their business.

• Data strategies – the FCA expects plans to clearly explain the data needed to monitor compliance with the Duty, e.g. how they will source, package, monitor, govern and act upon the data. Firms that have considered both shorter-term data solutions as well as longer-term data strategies were viewed positively by the FCA.

 

Next steps

In the next few weeks, the FCA will be writing to firms to highlight further expectations and some of the key risk and harms that need to be addressed. The FCA will also be issuing a survey to small and medium firms to understand the progress with implementing the Duty.