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Actionable insight from the FCA’s Consumer Duty half-term report

Hugh Savill
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On 20 February, the FCA published an update on Consumer Duty implementation, highlighting areas of good practice and areas for improvement.

A criticism often levelled against the regulator is that principles-based regulation makes it hard to know if you’re getting it right or wrong. That’s especially acute for boards with personal accountability who are preparing for their first Consumer Duty annual report.

The lengthy update goes some way to answer that. As well as generic items, there are some interesting tangible examples and practical elements that could yet be incorporated by firms.

The report card is mixed. The FCA notes some firms are “lagging behind”, and as we’ve seen from its recent intervention into GAP insurance, there can be quick consequences if you don’t up your game.

We do not want to see firms waiting to see if we will intervene to address an issue,” warned Sheldon Mills, Executive Director of Consumers & Competition in a speech published to coincide with the report.

As Mills pointed out, a lot can be achieved before July’s looming deadline. We have covered it before that this is a landmark piece of regulation with a huge reach. No one can now say they didn’t know it was coming.  

Below we highlight the key points from the FCA’s update. In preparing for the board report in July, it would be well worth comparing these points against the existing work programme.

Good practices

  • Ownership across the business and board level.
  • Developing new data and metrics to better understand customers, and  introducing governance so that action is taken where problems are identified.
  • Review of bonus schemes in line with the aims of the Duty.
  • Turning off productivity targets for customer service staff if someone is identified as vulnerable.
  • Simplifying distribution chains and products with similar and overlapping features.
  • Enhancing product benefits or reviewing fees to enhance value.
  • Working with communication experts and adapting material to support staff in the communications with customers.
  • Removing obstacles and ‘sludge’ practices in customer journeys.
  • Ensuring outsourced work meets Consumer Duty standards.

Must try harder

  • Ownership by programme teams or risk and compliance, and not discussed at board level.
  • Weak data and monitoring strategies.
  • Asking customers repeatedly about vulnerabilities.
  • Not sharing information across distribution chain or understanding role in the chain.
  • Charging customers for a service that doesn’t benefit them.
  • Relying on market benchmarks to justify fair value.
  • Being unclear with customers about what charges apply and when.
  • Not taking time to understand customer’s circumstances when in financial difficulty.
  • Not having good systems to protect and help customers as a result of fraud or cyber attacks.

There is also some comment on assessing closed products, which will become subject to the Consumer Duty from July 2024.  It is worth quoting in full:

We will not judge firms with the benefit of hindsight.  We don’t necessarily expect firms to re-price products or to repeat underwriting in every case if conditions such as life expectancy or economic conditions have changed.  However, if a firm could have reasonably known that its assumptions were significantly wrong at the time a product was sold, we will consider if the firm complied with rules that were in place at the time.

Get in touch if you need support such as to provide assurance ahead of your annual report or to help you in your interactions with the regulator on Consumer Duty related topics.