Consumer Duty and Board Governance

All the firms I work with are deeply embroiled in the detail of implementing the FCA’S Consumer Duty by the deadline of 31st July 2023. But therein lies one of the major risks – because in this regulatory initiative and even more than usual,?“the devil is in the detail”. Many board directors are likely to be too far removed from implementation to safely protect themselves and the firm. A non-executive simply does not have time for implementation detail but, nevertheless, must deliver successful and competent oversight of the initiative.

The FCA?have made public announcements saying that this initiative is a “game changer for them”; they are rapidly strengthening enforcement capability – more staff and new offices in Leeds and Scotland; repeated in depth communications of all types are being issued – everyone is being regularly “warned”.

This time the whole initiative does have the feel of one where the regulator clearly intends tough and energetic enforcement, unlike many of their previous consumer focussed protection steps. They know they cannot risk failure themselves on this one.

So what does this threat mean for directors, and board governance generally, and how can individual directors protect themselves? Here are some tips:

• Directors should identify and understand their personal obligations, both in company law, FCA Rules in respect of Consumer Duty, wider PRA/FCA board governance standards, and of course the Senior Managers Regime.
• They should also understand their obligations in respect of the Equality Act 2010 (especially concerning vulnerable customers) and the Data Protection legislation and how they link into Consumer Duty.
• Directors should specifically pay added attention to the treatment of vulnerable customers, which has been elevated to a higher level by the Consumer Duty Rules as compared to previous guidance on the subject.
• Directors must be able to document/evidence what they have personally done to assess if what is being implemented in the business is reasonable and sufficient. This will differ from firm to firm.
• Board members should not rely on the board member appointed as Consumer Duty Champion as a way of not getting deeply involved in consumer duty oversight themselves. There is an activity of “challenging the Champion”, just as much as the Champion challenges the Executive /SLT.
• It would also be wise to have a “high level independent assurance check” once or twice during the implementation period leading up to 31st July as a prudent oversight action. This also helps to gauge how you compare to similar size firms.
• By implementation date the board should be able to demonstrate what cultural and behavioural changes are underway that will improve customer outcomes from those that existed a year ago.

In the unfortunate event of receiving an FCA enforcement inspection, having evidence that you have done the above will be a great help if you are interviewed on a personal basis. A consequence of?failing an enforcement visit can be the FCA requiring expensive remediation, a possible fine, reputational damage and?a change of board members – definitely something to avoid!