James Daley

By James Daley

The FCA published its final policy paper for the its new Consumer Duty today - representing a significant shift in the way it plans to regulate retail financial services firms.

While the policy has been well trailed - with consultation papers in May and December last year - today's final statement makes it clear that the FCA means business, and expects change now.

For many in the industry, the main complaint in response to last December's paper was the implementation timetable. Although today's paper confirms that the implementation date has been moved back to 31 July 2023 (and 31 July 2024 for books of closed business) - the FCA has also added a challenging schedule of milestones that it expects to see firms hit between now and next summer.

  • By October 2022 (less than 10 weeks away!), company boards must have plans in place to assess their competency against the new rules.

  • By April 2023, they must have completed their first reviews, and put plans in place to remedy any issues

  • By the implementation date in July 2023, they must have completed any necessary amends to ensure they are compliant.

Although the implementation date has moved back - the expectations around what is expected in the meantime have tightened.

Much of the rest of the final policy statement is similar to the last consultation paper in December. There are some tweaks - but by and large, today's paper simply provides more guidance (121 pages of it) and elaboration on what is expected.

A new sense of urgency

I'm not sure that the timetable as laid out in today's paper will be achievable. Although I see no reason why firms should not be able to carry out initial assessments by April next year - some of the changes that will be needed will take time to implement. For example, if a large firm identifies that its terms and conditions need rewriting - it can easily take a year from project kick-off to completion and distribution.

Although today's timetable may spark blind panic in some firms, my sense is that while the timing has deliberately been framed to inject a sense of urgency, the FCA will take a pragmatic approach in terms of how it enforces against the Duty.

At an FCA briefing yesterday, Sheldon Mills said that once the implementation date had been and gone, there would still be a period of bedding down - and it was unlikely the FCA would be enforcing against anyone for failure to comply with the Duty until at least another year beyond implementation.

Nevertheless, those firms who have spent the last year sitting on their hands waiting for the final rules may now regret that decision. Boards need to demonstrate this is on their agenda within the next 10 weeks. Those who have already started the work will be in better shape - but they'll need to keep going.

What firms need to do now

1. Create a plan. My reading of today's rules is that by October, boards need to have clear sight of how their company intends to approach the Consumer Duty. That means having completed their gap analysis, or at least having a plan in place to complete it over the coming months. (We can help with that!). There needs to be clear lines of responsibility for the Duty within every organisation - and clear deadlines for completion of this first stage of action.

2. Prioritise. If you've done part one robustly, you'll have uncovered a number of things that need to be rectified. That may be tightening up your product governance, improving your root cause analysis, or rewriting some of your communications. You should prioritise these and put a clear implementation plan around each item. Although today's paper suggests everything needs to be completed by July 2023, the guidance suggests that in practice, a risk-based proportionate approach will suffice.

3. Project manage and track progress. Start the necessary work, and make sure it is well project managed. An honest dialogue with your FCA supervisor about what's possible and what's not possible by July 2023 is likely to be expected for larger firms over the coming months.

4. Create your report. The FCA expects boards to receive and review a report detailing compliance against the Consumer Duty every year. If you do a good enough job at assessing the problems and building plans the first time, future years should be about checking whether new processes and products meet the requirements of the Duty. However, it's important that firms embed a continuous process of improvement and review - so if you're doing a thorough job, you should always be finding new things that can be improved.

We've already carried out Consumer Duty assessments for a number of banks, building societies and insurers over the past few months. As well as helping firms validate that they are meeting the new requirements, we're also setting levels of better and best practice above the FCA minimum - and providing an accreditation for firms that reach those higher levels.

The FCA has made clear that this is not simply a box-ticking exercise that can be dealt with by the compliance team. In many businesses, it will raise challenging questions about pricing, service levels and product features. In most cases, the remedy will not be pulling out of a market or fundamentally changing a proposition - it may simply require better communication so that customers go in with their eyes open. But this policy does expect firms to stop profiting from customers' ignorance. If your profitability relies to some degree on inertia, you'll need to work much harder to show that you have reduced the barriers to switching, and have done everything you can to clearly communicate customers' options to them.

If you'd like us to help you on your journey, please reach out to us at corporate@fairerfinance.com.