The Consumer Duty crystalises a paradigm shift in the FCA’s regulatory priorities

The Consumer Duty is the latest step taken by the FCA in placing the customer, rather than the firm, as the focal point for regulatory consideration, following on from Operational Resilience, which entered into force earlier this year.

It will apply to all products and services offered by FCA-regulated firms to retail customers. The timelines are pressing; the final rules are expected to be published on 31st July 2022 and entered into force by 30th April 2023. Firms yet to invest in their response to the incoming Consumer Duty must make it a priority or risk falling behind their peers.

The regulation’s purpose is to establish a higher expectation for the standard of care that firms give consumers, by mandating a fairer and more consumer-focused market. At its core lie two paradigm-shifting concepts: that protecting consumers from harm in financial markets is the central focus of the FCA, and that regulation will be driven by outcomes, rather than processes.

What the Consumer Duty means for you:

To foster an environment of consumer-centricity, the FCA has established a ‘Consumer Principle’, whereby ‘a firm must act to deliver good outcomes for retail clients.’ It suggests a desired change in firms’ culture and conduct, reflecting the behavioural standards the regulator demands from firms.

The FCA has also published guidance on how it expects firms to behave through Cross-Cutting Rules, which apply to all areas of firm conduct and details how firms should act; and the Four Outcomes, which dictate what firms must do to comply and adhere to the new Consumer Principle.

Why it’s vital to start compliance now

Given the proposal’s wide scope and impact, coined with the short implementation period, it is critical firms begin evaluating their position and drafting compliance strategies.

The regulation has implications across the entire distribution chain of retail products and services, including wholesale firms who have “direct engagement” in such products.

Also, firms do not expect significant variation between the amended version, released in December 2021, and the final publication expected in July 2022, hence any early efforts in planning for compliance will not be wasted.

How to approach compliance

The Consumer Duty requires a top-to-bottom review of both a firm’s culture, with respect to the way they interact with clients, and their practical, day-to-day processes, such as designing new products and implementing necessary governance procedures.

Consumer Duty’s structure provides a foundation for designing a compliance strategy. The consumer principle is a high-level explanation of what the FCA is looking to achieve, and the cross-cutting rules and four outcomes provide logical breakdowns of how to address compliance.

Delta Capita’s Consumer Duty experts recommend considering the following when designing your strategy:

• Products & Services: Products must be targeted at the right consumers and designed to fit with their needs. Firms should focus on performing "look-back" monitoring of pre-defined customer outcomes to ensure expectations are met.

• Price & Value: Firms are expected to offer products whose pricing represents fair value. The price firms charge, must be consistent with overall benefits consumers can reasonably expect to obtain. Fair value criteria must be demonstrated and incorporated into existing pricing models.

• Customer Understanding: Firms' communications must be designed to help consumers make informed decisions about products and services. The content, detail and language should be appropriately tailored to each customer segment.

• Customer Support: All customers must be able to easily access the appropriate support to suit their needs. Firms must assess existing costumer journeys to identify and address unreasonable barriers.

How Delta Capita can help

Delta Capita’s UK Consumer Duty team comprises senior industry practitioners and former C-suite banking executives who have been personally accountable multiple FCA regulatory and conduct initiatives.

We have developed proprietary accelerators to help shape and re-invent your Consumer Duty efforts, such as our self-assessment methodology; functional and operational assessment toolkits; as well as governance and framework checklists.

To find out more, contact Delta Capita and speak directly to one of our experts.