Blog

By Shonagh McCarter, Consulting Director, CBS Consulting 

Four months on from the Consumer Duty coming into force in the UK on 31 July 2023, the FCA have been clear that while the implementation deadline may have come and gone, firms shouldn’t view the Duty as a ‘one and done’ project. Against the backdrop of the FCA’s 2022 Financial Lives survey which found that only 41% of adults, or 21.9 million people, had confidence in the UK financial services industry, and just 36%, or 19 million people, agreed that most financial firms are honest and transparent in the way they treat them, it’s not surprising that the Regulator has signalled its intention to proactively police the embedding of the Duty into business-as-usual. It’s important therefore that firms ensure there is an ongoing focus on customer outcomes as they transition to the next phase. Notwithstanding the real threat of enforcement action from the Regulator, good customer outcomes are also a differentiator for those firms wishing to compete on excellent customer service and experience. 

There are 5 key focus areas for firms in the months ahead: 

1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. Embedding the Duty 
                                       The Duty isn’t simply a tick box compliance exercise. It’s something that needs to become part of the DNA of your firm, your culture, and your values from the Board right down to Customer facing colleagues, from product design to communications and customer support.  
                                       Key to this is having a really good handle on current customer base and intended target market. The FCA has published guidance on how it expect firms to embed the Duty in FG22/5, as well as examples of good and poor practices from its review of firms’ fair value frameworks and assessments. It is also clear that the FCA will be looking for firms to demonstrate their roadmap for each customer outcome they are looking to achieve. 
                                       
                                       
2. Closed book Compliance 
   From 31 July 2024, the Duty will also apply to closed products and services (those that are no longer being marketed or sold but still have existing customers). While the Regulator doesn’t expect firms to consider the target market and distribution strategy for products that are no longer on sale, they do expect firms to consider if closed products and services could lead to foreseeable harm or frustrate customers pursuing their financial objectives. It’s clear from this that the FCA will be looking for Firms to demonstrate equal focus and investment in Servicing Journeys as Sales Journeys for both front and back books. 
   Firms should start this work early to ensure any rectifying actions, e.g., offering alternative options, reducing fees or charges, or improving customer support, can be addressed before the deadline. 
   
   
3. Preparing for the first Annual Report 
   At least once a year a firm’s board must review and approve an assessment of whether the firm is delivering good outcomes for your customers. As well as including evidence of how the firm has met the Duty and its outcomes, this assessment should also include any evidence of poor outcomes. This marks a key shift towards increased transparency. 
   Before signing it off, the board needs to agree the actions required to address any poor outcomes and agree whether any remediation action is required.  
   The FCA is highly likely to review a sample of these annual assessments across all sectors, and so firms must make self-assessments available on request. 
    
4. Continuous Learning and Improvement  
   One of the key objectives of the Duty is to create an enduring shift in culture throughout firms. This means that firms need to be continually assessing, testing, understanding, and evidencing the outcomes your customers are receiving – on an ongoing basis. This includes optimising operations and investing in IT enablement to demonstrate good customer outcomes. Firms also need to think about how they are meeting the needs of all their customers at every stage in the customer journey, including those customers who require additional supports. 
   
   
5. Non- Banking Regulated Firms  
   The FCA has also indicated that non-banking regulated firms, such as EMIs and PSPs, also need to be embedding the Duty into their culture and it is likely they will come under additional scrutiny as a result. 

Consumer Duty isn’t a one-off compliance exercise. It’s also now an enduring and integral part of the regulatory lifecycle. Embedding the Duty will not happen overnight, and it requires significant cultural and specialist technical changes across the firm. It will take time, continual ongoing improvement, and expert knowledge to meet the FCA’s requirements. 

How can CBS Consulting help? 

CBS has worked with Clients on implementing and embedding the Duty and can provide advice and hands on support, including undertaking reviews of firms’ approaches in key areas; supporting with implementation plans for the July 2024 deadline for closed products and assisting with the completion of the annual Board report. 

We can also provide change management support with implementing the Duty for firms undertaking Regulatory Authorisation, including helping to design policy frameworks, procedures, and templates.