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What has happened? 

In January 2024, the FCA held a webinar on the Consumer Duty – Next Steps. A transcript of this webinar is available at here. 

What are the key points of the agreement?

During the webinar, Nisha Arora, the FCA’s Director of Cross Cutting Policy and Strategy, made a number of remarks that may be useful to firms occupied with implementing the Consumer Duty’s many requirements and that covered what the FCA wants firms to focus on in the coming months and also what it will be focusing on in the coming months.

Nisha commented that the early signs of change are positive. The FCA has seen firms developing new data to measure and monitor the outcomes they are delivering for consumers and has seen firms overhauling their product suitability assessments to make sure that the right products reach the right customers. It has seen firms reviewing their communications by making changes to the form and presentation of content to improve their clarity and boost consumer understanding. Nisha continues to underline the point that the Duty is not a ‘once and done’ exercise and that firms need to continue to focus on consumer outcomes, challenging themselves on whether the implementation exercises that they have done have delivered what is needed and to keep reviewing those on an ongoing basis. They also need to focus on how they are monitoring and measuring consumer outcomes, again on an ongoing basis, and using the necessary data.

There are also two areas that the FCA expects firms to focus on in particular in the coming months – that is the closed products work and the annual Board report, both of which need to be completed by 31^st July 2024.

The key FCA message to firms on closed products is to make sure they are on track to meet the 31^st July 2024 deadline. Firms might want to consider whether the product was closed for a particular reason that might have a bearing on consumer outcomes. For example, was it closed because it did not offer fair value or because the firm had complaints that might indicate harm or poor outcomes? There are some differences of approach with closed products; as they are not on sale to new customers, firms do not need to identify a target market and do not need to develop a distribution strategy. But that does not mean the Duty is any less important for closed products; it applies fully and firms still need to do a thorough and ongoing assessment to ensure closed products deliver the right outcomes and meet the requirements of the Duty, including the cross-cutting rules. It is emphasised that the FCA is taking closed product implementation seriously and firms must do likewise.

At least once a year, the firm’s Board or equivalent governing body must review and approve an assessment of whether firms are delivering good outcomes for their customers. The FCA considers that this is an important piece of internal governance and that Boards have a critical role to play in setting the strategy and ensuring that their organisation is delivering the Duty and the right consumer outcomes as part of that strategy. The FCA wants to see Boards working with their Executives, challenging them and driving them in the right direction to deliver and embed the Duty.

Ongoing and effective outcomes monitoring will be an essential feed for the Board report. Firms will need to use it to evidence the outcomes firms are delivering and the gaps and the actions firms are taking to address these. The FCA wants to make sure the reports are working effectively and that Boards have the right data and the right MI as part of that process. Firms can expect the FCA to ask to see their Board reports, to make sure they are working effectively, and that firms are taking a data-led approach. The FCA will be reviewing a sample of firms’ Board reports, looking at the data they include to evidence consumer outcomes, how effectively the Board has scrutinised the firm’s performance, and what actions are planned to address any gaps. The FCA will feedback on what it sees and it is anticipated that this will help to drive good practice across the industry more widely.

The FCA will continue to use many other different ways to engage with firms to keep giving them information and insights on its expectations, including portfolio letters and has written to all firms subject to the Duty, setting out its expectations for implementing it and highlighting areas where firms need to focus. The FCA will also continue to use CEO letters, findings reports, and good and poor practice examples. Some changes will require the FCA’s intervention, so the FCA will be using a range of supervisory and enforcement tools and will intervene as necessary where it has concerns.

Where the FCA has concerns with an individual firm, engagement usually starts with a supervisory conversation, and, often, firms will make the necessary changes as a result. In more serious cases, where poor conduct is causing significant harm or where firms are slow or ineffective at addressing problems on a voluntary basis, the FCA has recourse to more formal tools such as requiring firms to stop certain activities. Where the FCA sees egregious non-compliance leading to consumer harm, it may have recourse to more substantive enforcement tools that can involve financial penalties or public censure.

The FCA will also be looking at problems across sectors and may undertake multi-firm work and cross-sector work to address issues that arise in multiple sectors. One such area is complaints handling; the FCA wants to ensure that firms across sectors deal fairly and effectively with complaints and have robust mechanisms in place to learn from the root causes of those complaints and avoid the same problems recurring.

How can we help you? 

Thistle Initiatives has supported firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting firms as-and-when, our team of specialists can serve as your right hand in meeting and complying with FCA regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your Consumer Duty arrangements, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to info@thistleinitiatives.co.uk.