Consumer duty: Raising the bar on consumer outcomes

A higher standard of customer protection

The FCA’s Consumer Duty represents what the regulator terms a “paradigm shift” in its expectations of firms. The Consumer Duty introduces a new Consumer Principle, which requires firms “to act to deliver good outcomes for retail customers”. In recognition of the barriers many consumers face to pursuing their financial objectives, the FCA wants to see firms deliver a higher standard of customer care and protection, and to go further to equip consumers to make effective decisions in their interests.

Following two consultation papers issued in 2021, the FCA published finalised guidance on 27 July 2022.

Firms are required to implement the rules for open products and services by the end of July 2023, and for closed books of business by the end of July 2024. The FCA has also set interim deadlines that firms must comply with, including for Boards to have agreed implementation plans by 31 October 2022, and for manufacturers to complete all necessary reviews for open products and/or services by the end of April 2023 and share relevant information with distributors.

The rules impact all firms which distribute or manufacture products and/or services to retail customers, and form a crucial part of the FCA's 2022-2025 strategy.

The wide-ranging proposals will require firms to review their product suite, communications and end-to-end customer journey, and to consider changes in areas including governance and accountability, MI and reporting, product design, pricing, distribution, servicing and staff training - all within a challenging implementation timeframe.

“We will make the Consumer Duty an integral part of our regulatory approach and mindset - including authorisation, supervision and enforcement priorities and processes.”

FCA business plan 2022/23

In May 2022, 1 in 4 of all UK adults had low financial resilience.

FCA Financial Lives survey, May 2022

Key challenges

Defining and monitoring good customer outcomes

Creating a framework for monitoring customer outcomes, based on appropriate data and MI, will be challenging. Embedding the right governance to review data, identify and action concerns - and to avoid foreseeable harm - will be key.

Scrutiny over subjective judgments

The rules require firms to make judgments on a number of subjective FCA concepts, such as ‘foreseeable harm’ and ‘fair value’. Firms need to define these concepts, tailored to their business and products and services. The outcomes-based nature of the rules gives firms greater flexibility in how they interpret the changes that are required, but the lack of prescriptive guidance can present difficulties.

Data

Data and KPIs should be used to evidence outcomes for consumers at all stages of the customer journey and product lifecycle. Poor data will impede the ability to undertake robust assessments and evidence outcomes. Thinking carefully about data capabilities and where technology can be leveraged to improve consumer insight is critical.

Accountability

Firms need to consider the impact of the rules on staff (through the new conduct rule) and on how senior managers perform their duties and fulfill their obligations. Firms should be prepared to deliver tailored staff training, embed the changes in governance and accountability structures, and ensure the interests of customers are central to their culture and purpose throughout the business.

Supporting and empowering consumers

Firms will need to evaluate how they support customers through their financial journeys, and enable them to make decisions in their interests and to pursue their financial objectives. Clear and timely communications are imperative to this.

The FCA has been clear that it will take an ‘assertive’ approach to firms’ implementation of the new rules, and has strongly cautioned firms on their readiness to meet the Consumer Duty. Firms should take a risk-based approach to implementation, focusing initial work on the most complex and risky products, and pay particular attention to the strengthened requirements on governance and accountability.

Boards must take full responsibility for delivering Consumer Duty, maintaining oversight and challenging appropriately. The Consumer Duty should form part of the strategic planning for any financial services business in scope of the rules.

As the FCA’s implementation deadlines approach, look out for further PwC analysis and insights on how firms should be approaching implementing the Consumer Duty rules.