To mark the one-year anniversary of the Consumer Duty’s introduction, on 31 July 2024 the FCA hosted an in-person seminar and webinar, to assess the impact of the Duty and how firms should approach the second year to ensure ongoing compliance.
In opening remarks, the FCA were keen to emphasise the need for a proportionate approach to Consumer Duty, highlighting the balance the Duty seeks to strike between consumer protection and economic growth.
The Financial Ombudsman Service (FOS) also provided important insights into its role with respect to the Duty, and the increasing collaboration between the FCA and FOS in addressing consumer dissatisfaction and complaints in the financial services industry.
The session featured a panel discussion with key figures from the FCA and FOS.
Key takeaways that firms should consider are:
- Contributing to the FCA’s Call for Input: On Monday 29 July 2024, the FCA published a Call for Input on the “Review of FCA requirements following the introduction of the Consumer Duty”. Throughout the seminar, the FCA encouraged firms to contribute to the Call for Input, as the FCA acknowledges the challenges firm face in understanding and applying the FCA Handbook, due to its complexity and areas of duplication.
- Areas of particular concern: It was noted that two areas the FCA has observed that firms struggle with in relation to the Consumer Duty is Fair Value Assessments and Outcomes Monitoring. Best practice with respect to Fair Value Assessments and Outcomes Monitoring are considered below.
- Importance of culture: Firms should adopt a culture of compliance with respect to Consumer Duty from top to bottom, including senior boards and product design.
- Proportionate Enforcement: it was reiterated that the FCA will continue to take a proportionate approach to Consumer Duty enforcement. In particular, it was noted that “outliers” in certain industries can attract enforcement attention. Examples of “outliers” would be when a firm within a certain industry has a vastly different approach to Consumer Duty than its peers, for example, in its identification of vulnerable customers or target markets.
The Q&A session that followed allowed the FCA to highlight best practices that it had seen over the past 12 months and how firms can use this to improve their own compliance processes
Culture: The FCA expects firms to not only have in place policies and procedures in relation to Consumer Duty, but an overarching culture of compliance with the Duty. Best practices include aligning company values with the Duty, updating training and call scripts, and using data-driven approaches to understand customers better.
Continuous Improvement: There should be a culture of continuous improvement and responsiveness to best practices and feedback from FCA. Firms should engage with FCA guidance and updates with respect to Consumer Duty, and ensure that when engaging with the FCA directly, the firm takes on feedback.
End-to-End Customer Journey: The panellists noted the importance of understanding a consumer’s end-to-end journey, not only in the context of the Duty, but also more broadly when it comes to reducing consumer complaints. Best practices include mapping out the customer journey thoroughly and constantly reassessing it to ensure it aligns with real-life interactions.
Fair Value Assessments: Firms need to conduct solid benchmarking of their product value, using credible data. Firms should examine the total price paid by customers over time, and adopt a holistic approach in conducting fair value assessments.
Outcomes Monitoring: Firms should define specific outcomes to measure against, using a combination of qualitative and quantitative data. In assessing outcomes, firms should take necessary actions, and in turn, analyse the impact of those actions.
Working collaboratively when engaging consultants: When it comes to authorisation applications and variations, the FCA noted that there are many high quality applications from firms that have engaged compliance consultants, there have been instances where when a firm is questioned on Consumer Duty, the firm is not able to demonstrate a detailed understanding of their obligations. The FCA emphasised the importance of a firm working closely with compliance consultants to fully understand and engage with the full scope of the firm’s Consumer Duty approach.
Conclusion
The introduction of the FCA’s Consumer Duty was not without controversy, but the FCA’s commitment to transparency and its willingness to take a pragmatic approach to enforcement means the Duty will continue to evolve as part of financial services compliance culture in the UK. Ongoing improvement and proactive monitoring is still imperative for firms however, and the issues listed above serve as an important guide to bear in mind.
If you’d like more information on the Consumer Duty and how it affects you, please get in touch.
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