FCA's Consumer Duty: Understanding the potential impact

Background

Xcina Consulting has been monitoring and writing on the new Consumer Duty. This is the second article following on from our?initial piece?published at our regulatory calendar in July 2022.

The Financial Conduct Authority has published the first of the areas of the Duty where they have received queries from firms which are relevant to the broader market. The #fca is planning to keep firms updated. Firms should therefore keep a close eye on the regulator for its expectations and insights.

2022 October implementation

The key takeaways:

• FG22/5 stressed that firms’ boards (or equivalent management bodies) should have their implementation plans in place by the end of October 2022.
• These plans must be scrutinised and, where necessary, challenged to ensure they are deliverable and robust to meet the new standards.
• The FCA has stated that firms should expect to be asked to share implementation plans, Board Papers and minutes with their supervisors and to be challenged on their contents.

Further to the October deadline:

The October deadline reflects the need for firms to have clear plans to implement the Duty properly and on time. Whilst the FCA does not expect firms to have necessarily fully scoped all work required to embed the Duty by the October deadline, they definitely expect firms to be able to provide their own governing bodies and the regulator with the necessary assurance that the expectations set out in the Duty have been carefully considered and will be implemented for new and existing products by 31st July 2023.

Firms should also consider any work needed with other parties in preparing the duty and allow enough time for this.

Two areas of highlighted focus in this information

1. Consumer Duty Board champions

• The FCA want Boards and senior management to ensure that good outcomes for consumers are central to their firm’s culture, strategy and business objectives.
• In FG22/5, The FCA said that they expect firms to have a champion at Board (or equivalent governing body) level. The FCA further stated that this champion should be an Independent Non-Executive Director (NED), where possible. For larger organisations with group structures, the FCA expect this champion to be at an appropriate Board level to ensure that the Duty is discussed meaningfully.
• The primary role of the Board champion is to support the Chair and CEO in ensuring that i) the Duty is being raised regularly in all relevant discussions, and ii) the Board is challenging the firm’s governing body/management on how it is embedding the Duty and focusing on consumer outcomes.
• Firms should note that this is not a prescribed responsibility under the Senior Managers & Certification Regime (SM&CR). The FCA has not been prescriptive about this role, and firms can set it up in a way that aligns with existing roles and responsibilities on their Boards.
• Some firms have asked the FCA if the Board champion role can be fulfilled by the Chair rather than an Independent NED. As has been set out in FG22/5, it is envisaged that the Board champion work with the Chair, but this will depend on the characteristics of the firm and its Board. In some cases, it may work well if the Chair of the Board is also the Board champion for the Duty. The FCA expect firms to apply judgement and set up the role in a way that is effective for their organisation.
• This does not affect the Board’s collective responsibility in relation to the Duty or alter the respective roles of the Board and the executive in ensuring compliance with the Duty under existing governance arrangements. The Board champion is not an executive role, and they are not responsible for the firm’s implementation of the Consumer Duty but for ensuring it is discussed by the Board. Throughout the guidance in FG22/5, examples are included of the types of questions the Board champion or other members of firms’ governing bodies could ask to assure themselves the firm is meeting expectations under the Duty. These questions are indicative and designed to illustrate the outcome focus of the Duty. They are also the sorts of questions the FCA will ask firms.

2. Definitions of Closed Products

The Duty comes into effect on the following dates:

• 31 July 2023 – for new and existing products or services that are open for sale or renewal
• 31 July 2024 – for closed products or services

Firms should be aware of the definition of Closed products, which are those no longer marketed or distributed to retail customers or open to renewal.

Further guidance is provided regarding where existing customers can continue making payments under the existing product terms. This would still be considered closed as long as the product or service is not open to new customers. For example, a pension product that is no longer sold to new customers but where existing policyholders can continue to pay contributions would be considered closed.

It is up to firms to consider each product and determine whether it is closed.

The Future

As stated above, the FCA will continue to provide further clarity on firm-led queries in due course. Xcina Consulting will keep its clients up to date on relevant updates.

However, the Duty is clearly far more substantive. As such, Xcina Consulting will be writing further articles on the Duty in the following areas:

1. The Scope of the Duty
2. Cross Cutting Rules and Outcomes
3. Governance and Individual Accountability
4. Implementation and next steps.

Consumer Duty may have a potential impact on numerous aspects of the way firms need to fulfil their regulatory obligations. The timetable is tight, and firms should examine their potential liability under the new rules. Should you need any help on Consumer Duty or any other aspect of financial regulation, please get in touch with Xcina Consulting.

Our compliance specialist?Neil Bolton?covers a wide spectrum of regulatory releases working with you, enabling your firm to deliver best practice.?We cover the details in our?Regulatory Calendar.?Ensure your organisation stays ahead of these and other key announcements.??To discuss the impact for your firm, schedule a consultation with our team?here.?

Please contact Xcina Consulting for all your regulatory needs