We issued a Talking Regulation post on Consumer Duty implementation in mid-January, reminding firms of where they should be ahead of the fast approaching deadline. In the post we mentioned that we have heard reports of the FCA contacting firms about their implementation plans and these reports have now been confirmed by the FCA’s publication of its findings from a review of firms’ plans and approach to embedding Consumer Duty within their businesses. While this review focusses on the implementation plans of larger fixed firms with a dedicated FCA supervision team, the FCA has supplemented their findings with information gained through the course of their regular supervisory engagements with other firms.
While many of the implementation plans reviewed, demonstrate that firms understand and have embraced the focus on consumer outcomes as well as establishing extensive programmes to embed the Consumer Duty within their businesses, it appears that the FCA also found that some firms are further behind in their thinking and planning. This brings risks that these firms won’t be ready on time, or may have difficulty embedding Consumer Duty effectively.
The FCA has highlighted three key areas where firms should focus their attention between now and the end of July as set out below:
- Firms should make sure that they are prioritising appropriately, by focussing on what the biggest risks of customer harm are and where they have more work to do to meet Consumer Duty requirements.
- Firms should fully and honestly focus on considering the changes that are needed so that customers receive good outcomes.
- Firms should also work with other firms in the distribution chain, sharing information with them to improve customer outcomes.
Guidance for firms’ implementation plans.
The FCA also highlighted a number of weaknesses they identified when reviewing the implementation plans. We have reviewed these findings and produced some guidance under the six headings below, which you should take into consideration when reviewing your own plans to make sure that they meet the FCA’s expectations:
1. Governance
- Implementation plans should detail who is leading the implementation programme and who is responsible for it.
- Be able to provide evidence that your board and committees have properly scrutinised and challenged plans.
- Include timings of when you expect to complete implementation tasks in your plans, including when updates will be provided to the Board.
- Ensure that you have appointed a Consumer Duty Champion and that their responsibilities are clear.
2. Culture and People
- Detail how Consumer Duty will be embedded in your firm’s culture and how good customer outcomes will be delivered (this could include as an example how and when staff training will be carried out and updates communicated to staff).
3. Delivery
- Focus on identifying gaps that exist which will prevent your firm from delivering good customer outcomes and then scope out the requirements for addressing these gaps fully.
- Review the gaps you have identified against their potential for poor customer outcomes and prioritise addressing these gaps accordingly.
- Identify and clearly document any risks associated with internal and external dependencies, including in relation to resource planning.
4. Third Parties
- Clearly identify key third party relationships and the nature of your firm’s dependencies on these relationships.
- Assess how you should best engage and exchange information with them.
5. The four outcomes
- Detail how your firm has interpreted the Consumer Duty requirements, the challenges you will face in applying them and the customer outcomes your firm is looking to achieve.
- Provide clarity about the methodology your firm will use in the gap analysis review and ongoing reviews; and how you will amend existing frameworks to meet the new requirements.
6. Data Strategies
- Identify the data you will need to monitor adherence to the Consumer Duty and don’t assume that the existing data you have access to will be sufficient.
- Explain the data you will use to monitor compliance with Consumer Duty and how you will source, monitor, oversee and act upon the outputs of this data.
- Detail how you will monitor the outcomes different groups of customers are receiving, including those in vulnerable circumstances.
What’s next from The FCA…
The FCA has said that it will continue to engage with firms over the coming months in a variety of ways including:
- Engaging with fixed supervision firms where they have questions about their plans, or their approach to implementing Consumer Duty.
- Monitoring the progress that fixed supervision firms are making in implementing their plans.
- Carrying out more targeted engagements with smaller firms and sending out a survey to a sample of firms to understand the progress they are making.
- Sending letters to firms highlighting their key expectations on implementing the Consumer Duty and some of the key risks and harms they are concerned about.
- Updating their webpages and holding regional in-person events.
If you would like to talk to us about the content of your implementation plans, prioritising the outputs of your gap analysis, training staff on the new Duty, or any other related questions, please don’t hesitate to get in contact.
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