The FCA published its latest assessment of firms’ Consumer Duty implementation progress on 20 February 2024, outlining good and poor practice observed across sectors and reasserting areas of focus ahead of the July 2024 closed book deadline.
In a speech, Sheldon Mills, FCA Executive Director for Consumers and Competition, identified common challenges for firms in meeting the closed book deadline, as well as particular failings in firms’ fair value assessments. The FCA also published the findings from its autumn 2023 firm survey, highlighting the progress small firms have made to implement the Duty.
The FCA notes that some progress has been made across the sector to implement the Duty, highlighting examples of good practice. For example, it calls out firms’ actions to change customer fees, charges, and product offerings, as well as make targeted improvements to tailor customer journeys and communications.
The FCA also identifies areas where continued improvement is needed across the Duty’s four outcomes, as well as common failings in governance, outcomes monitoring, and treatment of vulnerable customers.
The regulator notes issues with firms’ fair value assessments, highlighting firms’ overreliance on market benchmarking and a lack of credible data to justify how their products and services provide fair value across different customer cohorts.
It also calls out failings in firms’ governance, in particular insufficient board involvement where implementation is driven by programme teams or risk and compliance functions. The FCA challenges firms to improve their data and monitoring capabilities, reiterating that repackaging existing data is not enough.
Firms continue to fail to share information effectively across the distribution chain, with the FCA highlighting a lack of focus from firms to ensure distribution strategies are driving good outcomes overall. It also highlights firms’ underappreciation of their role in the distribution chain and the responsibilities this confers on them.
Regarding firms’ treatment of vulnerable customers, the FCA highlights firms’ failings to identify weaknesses in processes to track vulnerable customers across multiple product sets and often adopting an over generalised approach to classifying customers as vulnerable. It also notes broader deficiencies in how firms engage with and support vulnerable customers, for example in the amount and frequency of information requested of customers by firms.
The FCA notes continued issues with inadequate staff training to have complex conversations with customers, and firms’ abilities to provide appropriate forbearance and advice for customers in financial difficulty. It also calls out some firms’ lack of sufficiently robust systems to protect consumers from loss of investments, savings or data due to fraud or cyber attacks.
Looking ahead to the July 2024 closed book deadline, the FCA recognises the common challenges facing firms and outlines its expectations of firms.
Where firms face difficulties with out of date or incomplete client records, it expects firms to take additional steps to mitigate the risk of harm to consumers, for example, through enhanced outcomes testing. Similarly, when dealing with ‘gone away’ customers, it encourages firms to test, monitor and adapt communications if these are not driving the right consumer outcomes.
Where firms have vested rights, it notes that firms may consider that giving these up and amending fees or charges is the most appropriate way to deliver good outcomes. The FCA adds that firms may also consider that clearer communications, including on how to switch, can support this.
Take prompt action to address any gaps in implementation.
Act swiftly to prepare to meet the closed book deadline.
Consider data capabilities and opportunities to leverage technology.
The FCA wants firms to be proactive and not rely on FCA intervention to remedy any issues or harm identified. Firms should closely assess how their approach to implementing and embedding the Duty in their organisation aligns with the FCA’s expectations and take prompt action to address any gaps and bolster their systems and processes.
Firms should continue to progress preparations ahead of the July 2024 closed book deadline, applying the learnings from the first stage of implementation, and taking a risk-based approach that prioritises areas of the greatest risk of harm. Firms with particular closed book challenges should not delay in taking all necessary steps to prepare for the deadline.
Firms should continue to consider their data capabilities, including where technology can be leveraged to advance functionality in monitoring and evidencing consumer outcomes.
The FCA expects the Duty to be embedded throughout a firm’s business, with strong leadership from boards. Firms should be preparing their first annual board assessment report ahead of July, ensuring there is sufficient time to identify and remedy data gaps and monitoring, and all necessary review and governance steps are taken.
“We do not want to see firms waiting to see if we will intervene to address an issue. Firms also need to get serious about their data and not assume they can just re-package existing information.”
The FCA plans to issue further communications targeted at closed book implementation ahead of the July 2024 deadline. It also plans to continue thematic and multi-firm work across issues and sectors where it identifies harms or common themes and risks.
