In 2022, the FCA published its Policy Statement and associated guidance on what is widely considered to be its most high-profile initiative – the new Consumer Duty. The policy is designed with the retail consumer in mind and aims to regulate firms to provide better outcomes for those dealing with financial services. 

The FCA has provided guidance as to how firms can make these improvements, such as utilising data to evidence positive outcomes for their customers and appointing a Consumer Duty champion at the board level to oversee the process.  

Hot off the heels of its announcement in July 2022, a tight deadline of July 2023 has now been set by the FCA for firms to demonstrate adherence to the rules for the active book (ie, current products and services on offer).  

Scramble to comply

With less than four months to comply, many firms are currently scrambling to implement their plans to improve customer outcomes.  

For firms still struggling, there are three major priorities to focus on between now and the July deadline.  

1.       Using a risk-based approach to prioritise implementing Consumer Duty rules 

The FCA recommends that firms utilise a risk-based approach to help prioritise implementation of the Duty and apply a proportionality and reasonability test while considering the following:  

• The nature of the products and services that are offered and the impact on the consumer (e.g., complex products/services versus simple products which are less likely to harm consumers).  
• The target market for each product or service and consumer characteristics (i.e.  vulnerable vs sophisticated).  
• The role of the firm and its relationship with its customers. 

This approach will help firms to identify core focus areas and strike a balance between conflicting priorities.

2.       Define consumer outcomes using the ‘SMART’ framework 

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.  

3.       Ensure better accountability and visibility at the Board level using the SMCR regime 

The new Duty requires firms’ governing bodies to review and approve the assessment of whether they are delivering good outcomes for their customers at least once a year. For this to be successfully implemented, firms will need to consider the right level of monitoring, governance and accountability, right up to the board level.  

There is an opportunity for firms to leverage the existing Senior Managers and Certification (SMCR) Regime, as alluded to in the final rules, to incorporate governance and monitoring through the value chain. This will entail changes to job descriptions and the statement of responsibilities within the SMCR framework to ensure accountability is appropriately embedded.  

The overall governance structure will also need to be reviewed for people to have access to the right data to drive positive behavior. It is worth noting that the proposition of a review of the SMCR framework, which was 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. 

The next stage 

The FCA has been engaging with the industry to highlight key areas of focus and specific data points for each sector to help with the implementation of the Duty. 

The message from the regulator is clear: firms must invest time and resources in developing a strategy that prioritises customers’ needs to keep the FCA satisfied.