With less than three months to go until the Consumer Duty goes live, where should firms direct their focus in the remaining time and beyond, and what will the Financial Conduct Authority (FCA) be looking for as it scrutinises firms’ compliance?
Narrowing of priorities
The FCA has given strong indications as to where it will focus its early supervision efforts - on the areas of concern outlined in its sector communications, and the issues which present the greatest risk of consumer harm. Its recent Business Plan and speeches by Sheldon Mills make clear the regulator will take swift action where it detects consumer harm, and will dedicate significant resources to bolster its supervision and enforcement activities.
With the implementation clock ticking, it’s imperative that firms prioritise the delivery of tasks which reduce the risk of consumer harm in high risk products or services, and address the key risk areas identified by the FCA in their sector. Where prioritisation decisions are made, this should be supported by a clear rationale.
Firms should be transitioning into go-live implementation, and the regulator will be looking for evidence that firms have made changes following the reviews they’ve carried out. This might include changes to customer communications following testing, changes to product fees as a result of value assessments, and actions taken by distributors based on the data provided to them by manufacturers.
Firms that conclude that minimal changes are required should expect the regulator to closely scrutinise why this is the case. The FCA has consistently made clear that the Duty represents significant change and it expects the Duty to have a positive impact.
Preparing for a post-July world
While endeavours to get over the July deadline are essential, firms shouldn’t lose sight of the journey that lies ahead.
Thorny issues remain for closed books, despite firms having an additional 12 months to comply. Challenges around data availability and the scale and complexity of closed books means firms should be taking proactive steps now to meet the July 2024 deadline.
“But readiness does not stop at the implementation deadlines. Ongoing monitoring, regular reviews and testing will be critical to ensure firms continue to meet customer needs and FCA expectations.”
A regular flow of information and dialogue through the distribution chain and across the business will be crucial to support this.
Some firms have implemented tactical solutions to meet the deadline rather than focusing on a full technology transformation to evidence the drive for good consumer outcomes. Post July, firms should be looking to enhance capabilities and build the business case for change.
The FCA expects the Duty to boost competition, inspire customer loyalty, and increase trust in financial services. Firms should recognise that embracing the Duty is a unique strategic opportunity to deliver on their vision, purpose and market position. Thinking innovatively about differentiating offerings or customer journeys from peers, and embedding a consumer-centric approach, are all instances of where a longer term strategic vision can result in value generation for a business.
As the first Consumer Duty deadline approaches, we are only at the start of the journey transforming how firms deliver good consumer outcomes. Embracing the Duty as an enabler of positive transformation and value creation will be key for successful long-term implementation.
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