With the implementation deadline looming, the FCA has set out some additional guidance for firms.

By Nicola Higgs, Becky Critchley, Effie Stathaki, and Charlotte Collins

With one month to go until the Consumer Duty (Duty) implementation deadline of 31 July 2023 (for new and existing products and services that are open for sale or renewal), the FCA is reminding firms of what they should be doing now to prepare.

The FCA has published the results from a survey of over 1,000 regulated firms that looked at how prepared those firms were three months in advance of the implementation deadline. The survey focused on smaller firms and sectors in which it appeared to the FCA that firms may have been less engaged and prepared; therefore, the findings are not necessarily representative of regulated firms more broadly. However, the FCA also set out some general expectations for all firms as they approach the implementation deadline.

The FCA extracted 10 key questions from those set out in FG22/5, highlighting these as the questions firms could be asking themselves at this stage (see the box below). The FCA explains that firms that are confident of meeting the implementation deadline need to maintain focus to ensure they remain on track. According to the FCA, boards should ensure that their firm has fully engaged with the details of the requirements and the shift to focus on consumer outcomes.

Firms that are struggling to complete all the work required before the deadline need to maximise the time available, prioritising action that improves consumer outcomes and reduces the risk of harm. The FCA considers oversight of this prioritisation as essential, and expects boards to ensure they have identified any potential gaps or weaknesses in their firm’s implementation and any action needed to remedy this. Lastly, the FCA expects firms that are a long way off from meeting the requirements to accelerate their implementation work and to prioritise the work that is likely to have the greatest impact on consumer outcomes.

The FCA explains that firms participating in the survey cited outcomes monitoring and the price and value outcome as particular areas where they would benefit from additional support. The FCA published a podcast on outcomes monitoring, which provides further guidance as to what the FCA expects from firms. The podcast touches on the type of information firms should gather and what documentation the FCA will be looking for. The FCA also recently published the findings from its review of firms’ fair value assessment frameworks, setting out good practices and areas for improvement that firms could consider (see this related Latham blog post).

The FCA emphasises that firms must alert the regulator if they will be in “significant” breach of the Duty when it comes into force. The FCA underscores that the survey is the first in a series of quantitative and qualitative work that it will conduct with firms this year. The FCA has previously stated that it will carry out a range of post-implementation work to review how firms are embedding the Duty, and has warned that it “will prioritise the most serious breaches and act swiftly and assertively where we find evidence of harm or risk of harm to consumers”. The FCA stresses this point once more, warning that regulatory action could include holding senior managers to account where they have failed to act to implement the Duty and prevent consumer harm.

Firms should consider not only their immediate priorities to meet the implementation deadline, but also how they will ensure that their business-as-usual practices enable them to meet the requirements of the Duty on an ongoing basis. Boards should be mindful of their important role in overseeing how the Duty is embedded within the firm and ensuring that the firm is meeting regulatory expectations (see Latham’s guide on the Consumer Duty for boards).

10 Key Questions for Firms to Consider
1. Are you satisfied your products and services are well designed to meet the needs of consumers in the target market, and perform as expected? What testing has been conducted?

2. Do your products or services have features that could risk harm for groups of customers with characteristics of vulnerability? If so, what changes to the design of your products and services are you making?

3. What action have you taken as a result of your fair value assessments, and how are you ensuring this action is effective in improving consumer outcomes?

4. What data, MI, and other intelligence are you using to monitor the fair value of your products and services on an ongoing basis?

5. How are you testing the effectiveness of your communications? How are you acting on these results?

6. How do you adapt your communications to meet the needs of customers with characteristics of vulnerability, and how do you know these adaptions are effective?

7. What assessment have you made about whether your customer support is meeting the needs of customers with characteristics of vulnerability? What data, MI, and customer feedback is being used to support this assessment?

8. How have you satisfied yourself that the quality and availability of any post-sale support you have is as good as your pre-sale support?

9. Do individuals throughout your firm — including those in control and support functions — understand their role and responsibility in delivering the Duty?

10. Have you identified the key risks to your ability to deliver good outcomes to customers and put appropriate mitigants in place?