Consumer Duty – have you underestimated the work to comply?

The FCA want you to take Consumer Duty seriously and have already made it clear that some firms have underestimated the work required to comply.

Implementation plan reviews

In January, the FCA published a ‘progress review report’ on how some of the larger firms are getting on with their implementation plans. The report highlights examples of firms that are making good headway but also highlights that they found some firms have underestimated the work needed to comply by the first deadline of 31 July 2023:

“We saw some plans that suggested firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate.” The FCA

The FCA observed ‘areas of concern’ from some of the plans that they reviewed. These concerns are clues to getting your implementation right and perhaps a suggestion of evidence the FCA might ask for during any enforcement action. With the devil being in the detail it would be prudent to pay close attention to ticking these off your list.

FCA areas of concern

Governance & oversight:

• Not having a specific board level Consumer Duty champion responsible for the oversight and governance of the implementation
• Lack of scrutiny or engagement from Chair and non-Executive Directors
• Limited evidence of questioning of plans and approval processes
• Lack of detail of implementation plans and progress updates for the governing bodies and board

Culture and people:

• No evidence of any consideration or assessment (gap analysis) of how far a firm’s current purpose, culture and values do, or do not, align with the Duty
• Lack of plans on what improvements could be made and how the Duty can be embedded into a firms’ culture
• No plans on how to get the people in the business to align with and support new company values that support the Duty

Deliverability:

• Project requirements from gap analyses not fully scoped with unclear timelines
• Lack of assessment and prioritisation for the projects that created the most risk for good outcomes
• No detailed plan to deliver the changes required by the deadline
• Risks for both internal and external dependencies were not clearly set out, with little thought given to mitigation strategies
• Lack of plans on how any Duty compliance changes are funded and resourced for execution
• A shortfall in budget and detail for required technology changes

Third parties:

• Lack of identification of key third party relationships and dependencies
• Limited consideration of engagement with third parties to exchange information, assess and plan any required change

The Four Outcomes:

• Not enough detail on how firms have interpreted the Duty’s requirements and considered the challenges of how they will apply them to their businesses, or the consumer outcomes they are aiming to deliver
• No clear methodology or approach to conduct reviews and gap analyses of products, services, communications and customer journeys against the Duty outcomes
• Lack of plans on how firms will amend and uplift existing assessment frameworks to meet the Duty standard and monitor ongoing compliance

Data strategy:

• Lack of plans to explain the data required to monitor compliance with the Duty
• No granularity of data that will be required to actually monitor and evidence outcomes under the Duty effectively
• Limited consideration of how firms will monitor outcomes for different groups of customers, including those in vulnerable circumstances

Will the FCA really enforce Consumer Duty?

Given the FCA has published their concerns and provided a warning that they will not move the deadline, it’s reasonable to assume that the FCA will look to rigorously enforce the Duty at the end of July.

“The Consumer Duty is a cornerstone of our three-year strategy and a key element of our work to set and test higher standards.” The FCA

Sheldon Mills, Executive Director, Consumers and Competition

Consumer Duty is the FCA’s response to the Financial Services Act 2021 and it’s success depends on how it is implemented and of course enforced. The FCA have a long history of enforcing regulations in the financial services industry and we can look at previous FCA enforcement actions as a benchmark for how the Consumer Duty might be enforced.

Failing to protect customers

In 2018, the FCA took action against Tesco Bank and fined them £16.4 million for failing to protect its customers from a cyberattack. The FCA found that Tesco Bank had failed to exercise due skill, care, and diligence in protecting its customers’ accounts, and that it had failed to respond appropriately to the attack. This case demonstrates the FCA’s commitment to holding financial firms accountable for failing to protect their customers.

Avoid customer harm

Another example is the FCA’s investigation into the Woodford Equity Income Fund, which was suspended in 2019 following a wave of investor withdrawals. The FCA is hoping to reach an enforcement conclusion soon on whether the fund’s managers, Neil Woodford and Link Fund Solutions, breached the regulations by failing to act in the best interests of investors. This case highlights the FCA’s focus on ensuring that financial firms act in the best interests of their customers and avoid customer harm.

Protecting vulnerable customers

In 2014, the FCA forced payday lender Wonga to pay over £2.6 million in compensation to its customers. The FCA found that Wonga had been guilty of a range of unfair practices, including using aggressive and misleading debt collection practices, and failing to carry out adequate affordability checks. This case demonstrates the FCA’s commitment to protecting vulnerable customers and ensuring that firms provide products and services that are appropriate for their needs.

Overall, these and other examples of FCA actions demonstrate the regulator’s commitment to enforcing regulations in the financial services industry. They will hold firms accountable for failing to act in the best interests of their customers so we can expect the FCA to take a similarly rigorous approach to enforcing the Consumer Duty.

Take action

So, if you haven’t got to the detail and started the actual implementation of changes required to comply with Consumer Duty, then there’s no time for delay. The clock is ticking and the deadline is not moving.

If you need help with resource or any element of your implementation plan or would like to find out more about our solutions that will help to fast track your changes, then download our free guide, or talk to us today.  

Consumer Duty: Advice and Solutions for your Implementation Plan