There are shortcomings in almost every area of implementation ahead of the introduction of the Consumer Duty in the UK on July 31, the FCA has warned, and it is prepared to take “robust action” over the most serious breaches.

The latest warnings from the regulator came in an announcement that it had examined how 14 firms proposed to offer “fair value” to customers through their products and services and found shortcomings across the board, and in a speech by Sheldon Mills, the FCA’s Executive Director of Consumers and Competition.

Speaking to an audience at EY, Mills said: “You have had an epic head start. We have talked about the Consumer Duty for years. And the 31st of July – the deadline for its implementation – is rapidly approaching.” He emphasised that: “Parliament took a significant step asking us to consult on introducing a duty of care. It provided a strong legislative signal for a step change in consumer protection in financial services.”

Fair value assessment

Mills (pictured) acknowledged the “substantial efforts” made by many firms, but said that tens of thousands of others still had a lot of work to do. The regulator has published a review of fair value assessment frameworks, highlighting good practice, and warned that failure to comply will lead to “robust action, such as interventions or investigations, along with possible disciplinary sanctions”.

He said: “The FCA has set out four key areas for firms to focus on which include collecting evidence that demonstrates products represent fair value and having clear oversight of actions to take if products do not provide fair value.”

He was critical of firms using average outcomes rather than individual cases to demonstrate fairness. The assessment frameworks document picks up on a tendency, in particular, to use “high-level or unevidenced arguments that their business models or ethos are inherently fair value”.

The four areas for focus identified by the FCA are:

• collecting and monitoring evidence that demonstrates that products and services represent fair value; 
• clear oversight and accountability of the necessary remedial actions if they do not provide fair value; 
• where relevant, ensuring sufficient analysis of the distribution of outcomes across groups of consumers in the target market, beyond broad averages, to demonstrate how each group receives fair value; 
• summarising and presenting fair value assessments in a way that enables decision-makers to robustly discuss whether the product or service represents fair value, such as by being clear on any limitations in the analysis or evidence.

Concern about the practicalities of meeting the deadline and requirements for Consumer Duty remain high across the industry, with a gathering of senior compliance professionals at one the regular roundtables held by our parent company Global Relay spending some considerable time addressing the subject. The lack of clarity over definitions in particular was a major concern.