A year into the Consumer Duty, with its scope now extended to cover closed products and services, the FCA will be reviewing its approach to monitoring firms’ adherence to the Duty and investigating potential breaches. In doing so, it will have to wrestle with some big questions …

Supervision

Horizontal or vertical?

Is the Duty best supervized via thematic work across groups of firms (horizontal) or through individual firm supervisors (vertical)? Put simply, the former should provide greater consistency while the latter should deliver better individual outcomes.

The pivot is likely to be what authority is given to the thematic teams when dealing with any major breaches by the largest firms, particularly the biggest banks. Vertical supervisors will be best placed to ensure the firm fixes the problem but will tailor the solution to the firm’s circumstances. Thematic supervisors, meanwhile, will want to set common precedents and establish a level playing field.

Central or local?

Linked to the first question, is Consumer Duty work best run through a large program, or delegated to department and manager level? Again, the former should deliver greater consistency, the latter better individual results. There needs to be some kind of central program but its role and authority could vary enormously, from being a directing hand to acting as an information repository and admin hub.

Because of its structure and culture, the FCA will almost certainly choose some form of mixed approach, but any hybrid will tip one way or the other.

Motor finance

Whichever way the FCA tilts, the Motor Finance work – still taking shape and likely to last several years – will be distorting the landscape. It’s big enough in and of itself to be run as a separate program and it will be almost impossible to keep it separate, in the public eye, from the wider Consumer Duty programme (however structured).

The two will therefore need to work closely and be mutually supportive, a challenge which has proved daunting in the past, notably with PPI and the wider Treating Customers Fairly program. See also Is the UK heading for a motor finance market scandal?

There is no perfect approach here, and any answer to these questions will have downsides as well as advantages. The skill will be in building strong enough bridges between any silos and anticipating potential problems sufficiently in advance. The FSA had a patchy record of handling these issues successfully and, so far, the FCA hasn’t been noticeably better. With the stakes so high, hopefully this time will be different…