16th August 2022

The Consumer Duty

The Consumer Duty (Duty) is being seen as the largest regulatory change for 20 years, even more seismic than RDR, as the firm has to demonstrate value, fairness and customer centricity throughout the advice process and beyond. There are impacts on the senior manager regime accountabilities and conduct rules for all staff (a new one is being introduced). 

Consumer Duty:

The Consumer Duty (Duty) is the FCA’s standard it expects firms to give to retail customers. Its aims is to ensure consumers of retail financial products are better protected from current and new/emerging drivers of harm. All firms in the customer journey, irrespective of whether you are a manufacturer or distributor of products, will be impacted by the Duty.

What does the Duty comprise of?

In essence, there are three main components to the Duty:

1. Consumer Principle – this will be the 12th Principle which clearly states the requirement for firms “ to act to deliver good outcomes for retail customer”. 
2. Cross-Cutting Rules - these are three rules that aim to articulate the standard of conduct the FCA expects under Principle 12. They set out how firms should act (both proactively and reactively) to deliver a good outcome for customers. The rules require firms to:

• Act in good faith with retail customers,
• Avoid causing foreseeable harm to retail customers, and
• Enable and support retail consumers to pursue their financial objectives.

3. The Four Outcomes are a draft set of rules and guidance that sets more detailed expectations for firms' conduct that represent vital elements of the firm-consumer relationship. They differ depending on the firm's role in the customer journey i.e. a manufacturer or distributor. The outcomes are as follows:

• Products and Service – ensuring the product's design meets customers' needs, characterises, and objectives in the identified target market.
• Price & Value – ensuring firms assess whether their products or services provide fair value to a customer. This aims to address the issue of firms offering products or services which are unfair or poor value, thereby potentially leading to foreseeable harm. 
• Consumer Understanding – ensuring firms' communications enable and support customer understanding of their products and services and enable customers to make informed decisions.
• Consumer Support – ensuring firms provide the level of support (throughout the relationship) that meets customers’ needs and allows them to pursue their financial objectives.

What do firms need to do?

If they haven’t done so already, firms need to start examining a number of things, such as:

• Education/Briefings – Are the Board, senior managers and stakeholders aware of the new requirements – what they mean for the firm etc?
• Distribution Chain – Understand where the firm’s products or services are in the distribution chain and map out the customer journey (in detail).
• Gap Analysis - Conducting a gap analysis against the new standards and rules.
• Culture – The FCA are keen to drive the message about having the right culture that perpetuates a truly customer-centred approach. How does the firm’s culture measure against this? How does an customer-centred culture flow down to senior manager conduct, processes, procedures, QA etc? How can everyone be bought in?
• Governance & Accountabilities – How will this impact on product governance and senior manager accountabilities?
• Firm-Wide Training – Planning a training programme for all leaders, managers and teams on the Duty but what it means for them in their role. There will also be a 6th conduct rule, so firms and staff will need to know what that means as well!

Implementation Timetable

• End Oct 2022 – Boards should have agreed an implementation plan and maintain oversight of delivery to ensure the implementation work is planned appropriately. Boards must provide evidence that their plans have been scrutinised and challenged to ensure they are robust. FCA supervisors may ask for board papers, minutes and plans on which the firm should expect to be challenged.
• End July 2023 – The Duty will apply to all new products and services and all existing products that remain on sale or are able to renew.
• End July 2024 – The Duty will apply to all closed products and services.

What next?

It starts with awareness, therefore, if firms haven’t done so already, we would recommend the first step is for the Board and senior teams to be fully briefed on the Duty, the rules, requirements and expectations of firms, and the most immediate being the implementation plan by the 31st October 2022. 

If you would like help implementing the Duty, Paul Harper Consulting can help.

We can offer group or one-to-one education sessions dependent on the firm's requirements. If you would like more information contact Paul Harper Search via our website, where you can book a call. www.paulharpersearch.co.uk

View all the latest job opportunities from Paul Harper Search here.

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