Consumer Duty: Time is ticking for the deadline

With the Consumer Duty deadline looming large, firms are busy putting their implementation plans into action. Firms who have received actionable feedback from the Financial Conduct Authority (FCA) will also need time to readjust their plan before they start putting in the groundwork.

Given the wide reach of the Consumer Duty (the Duty), defining good consumer outcomes may not be as straight forward as it may seem on paper. There is no template for an implementation plan, nor does it have a prescriptive list of compliance requirements.

At the same time, the FCA has consistently highlighted that the Duty is an outcomes-based regulation in which each firm will need to define good outcomes for their customer and evidence these with supporting data.

As a result, quite a few firms are struggling to turn this outcomes-based rhetoric into action through a clear implementation plan.

Here we look at three things that firms should pay attention to between now and the next deadline of April 2023.

  1. Application of a risk- based approach to prioritise implementation of CD rules

Given the tight timelines, firms should take a risk-based approach to help prioritise implementation of the Duty and apply a proportionality and reasonability test whilst considering the following:

 (1) the nature of the products and services that are offered and the impact on the consumer (e.g., complex product/service versus simple products which are less likely to harm consumers)

(2) the target market for each product/service and consumer characteristics (i.e.  vulnerable vs sophisticated)

(3) the role of the firm and relationship with customers.

We believe this approach will help firms to focus on priority areas and strike a balance between conflicting priorities.

  1. Use the ‘SMART’ framework to define consumer outcomes

Secondly, firms need to consider articulating their consumer journeys, experiences and outcomes in terms of Specific, Measurable, Achievable, Realistic and Timely [SMART] goals. This will ensure they have a data led framework in place for turning outcomes into an actionable book of work aligned to the FCA rulebook.

This is crucial as the FCA is expected to adopt a similar data led approach within its supervisory and enforcement framework to measure the success of the Duty rules. 

  1. Leverage the SMCR regime for better accountability and visibility at the Board level  

Thirdly and finally, the rules require firms’ governing bodies to review and approve the firm’s assessment of whether it is delivering good outcomes for its customers at least annually.

For this to happen, firms will need to consider the right level of monitoring, governance and accountability every step of the way reporting up to the board level. There is an opportunity for firms to leverage the existing Senior Manager and Certification (SMCR) Regime, as alluded to in the final rules, to incorporate governance and monitoring through the value chain.

It is worth noting that the proposition of a review of the SMCR framework announced in the chancellor’s statement, is intended to help firm up the regime in the interest of superior governance around outcomes-based regulations such as the Duty.

In terms of next steps

More supervisory guidance is expected from the regulator which is likely to highlight key areas of focus/specific data points for each portfolio of firms. But in the meantime, firms will need to invest time and resources in crafting an approach which truly puts customers’ needs first to win the FCA over.

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