Consumer Duty and fair value: where are you now?
In just over six months’ time, the Consumer Duty will be a regulatory reality for FCA regulated
In just over six months’ time, the Consumer Duty will be a regulatory reality for FCA regulated organisations, and so the clock is ticking for businesses to ensure their new and existing products and processes are compliant by 31st of July 2023.
This momentous shift to a more assertive form of supervision by the FCA means this date is not one that can be merely filed away and forgotten – nor is it just a finish line that can be reached and put aside.
In reality, the 31st of July 2023 is the starting point of a new evidence-based, outcome-focused era of regulation.
So, we’re highlighting three important steps that firms can take now to get themselves ready for that Consumer Duty starting line.
In recent years, the FCA’s supervisory approach has taken a portfolio-based tack, which looks set to continue under the Consumer Duty. And so, developing a clear understanding of where your firm’s business model sits within the FCA’s portfolios will be vital, as this will largely determine how you’ll have to engage with the regulator going forward.
For instance, larger ‘fixed firms’ will have a named FCA supervisor to work with, whilst smaller firms will need to address specific issues of focus from the regulator.
The crux of your firm’s Duty preparations should always have the Consumer Duty’s four outcomes – product and services, price and value, consumer support and consumer understanding – at their core, as it’s against these outcomes that the FCA will measure your level of compliance.
Every engagement your firm has with the FCA from now on will be used to gauge whether you’re taking the Duty seriously, and whether you’ve put sufficient plans in place to get ready for the step change ahead.
Many firms will have working groups established by now to tackle the changes in policy and processes needed to realign with the Duty’s more stringent oversight standards. And it’s now more important than ever that everyone across your entire business understands why these changes are taking place, and how they’ll require a long-term behavioural shift – not just compliance with new processes.
The impact of this transformation will be most keenly felt at board and senior management level, with the latter likely to oversee its rollout and application in real terms. We also know that a cornerstone of the Duty is to provide support for vulnerable customers, so those colleagues in customer facing roles will need to be trained to spot and identify those characteristics and provide suitable support.
The FCA has said that the ‘proportionality’ aspect of the Duty will relate to what can be reasonably expected of a prudent firm’s products or services. For example, under the Consumer Support outcome, the FCA would not expect a firm to test every client communication for Duty compliance. However, they would expect firms to identify the most important communications they’re putting out, and make sure those are robustly scrutinised to ensure they’re clear, relevant and not misleading.
So, in this instance, firms will first need to document why they consider such communications to be the most critical, and then have an effective method of checking these documents against the Consumer Duty requirements.
A key measurement that firms can implement now is a proportionality test – compare the current areas where you’re collecting MI against the metrics in place to gather likewise Consumer Duty outcomes data. For example, if you find you have reams of data about the sales performance of your products but only one comparative Consumer Duty metric – e.g. client satisfaction or product suitability – this suggests a disproportionate focus on a single aspect of performance and will need to be remedied.
The time is now to gain independent assurance that your Consumer Duty plans are on the right regulatory track. To discuss how TCC’s compliance experts can help your firm to deliver a compliant future, book an introductory meeting today.
To learn more about the good consumer outcomes that will be expected under the Consumer Duty, watch ‘Consumer Duty’s good outcomes: understanding the regulatory expectations’, where TCC’s Associate Director and Consumer Duty expert, Neil Dethick, discussed this topic with a panel of experts.