‘Clock is ticking’ on implementation of second phase of Consumer Duty, warns FCA
Delegates at PIMFA’s Consumer Duty conference were warned yesterday (28 February 2024) that the first implementation phase was not “a one and done” project with the director of consumer investments at the Financial Conduct Authority (FCA) warning “the clock is also ticking” on the second stage of its implementation.
Lucy Castledine said this year’s 31 July deadline for firms to have complied with the Consumer Duty for their ‘closed book’ business was just as important as last year’s deadline which applied to ‘open book’ business, adding “it’s not a once and done exercise for firms and neither is it for us.”
“We gave firms an extra year to get to grips with the complexity of all the systems and the increased work involved… but in many ways the distinction between open and closed book will soon be irrelevant” she said.
Ms Castledine said that the expectations the regulator would have around closed and open book business in terms of the Consumer Duty would “be the same, and many of the key issues around closed products and services are identical to the present.”
Firms should consider what they did in the run up to last year’s deadline and implement any lessons they had learnt, she said. Firms would still be expected to take a risk-based approach and put the greatest effort into where they identified the greatest risk of consumer harm.
“Even if you think your firm is not affected, look again, consider whether there are any closed book products or services within your distribution chain,” she added.
Gaps in monitoring data was already a problem facing some firms in terms of their closed book business which “could make it harder to serve consumers appropriately”, particularly vulnerable customers, she added.
Firms would also be expected to provide a board level report once a year as to whether they were providing good outcomes for consumers. This will be an internal governance requirement, and Ms Castledine said that the FCA wanted to see boards working with their executives to challenge and drive them in the right direction to evidence good client outcomes.
She added that in order to achieve this, ongoing outcomes monitoring would be an essential tool. Firms and their Boards would need to evidence the outcomes both good and poor, alongside the actions firms intended to take to deal with any deficiencies using the right data and management information. The FCA’s role would then be to examine how effectively the board had scrutinised the firm’s performance and what actions were planned as a result.
Ms Castledine said the Consumer Duty was not just in the interests of consumers, arguing it was also in the interests of firms and the wider UK economy. Its aim, she said, was to create a healthy environment for innovation and competition within the financial services industry.
The Consumer Duty, she said, was based on high standards which were designed to protect not only consumers, but also the integrity of the markets giving greater confidence to consumers and ultimately growing the financial services industry.
“A bit of upfront effort now should mean fewer rules down the line,” She added.
Reflecting on the last seven months since the Consumer Duty was first implemented, she said the purpose of the Duty was to bring about a sustained cultural shift in firms and their practices, and that the Regulator wanted firms to really take ownership of the Duty and “proactively identify the changes that are needed to improve outcomes… and make those changes”.
There had been many examples of firms taking ownership of the Consumer Duty in this way and making improvements, she said, but there were also instances where change had only come about because of the FCA’s early supervisory work and more work to be done.
“It is far better for all concerned to be in the former camp,” and “making changes through your own initiative, rather than waiting for us to ask first” she said.
