Guest blog by Bernadine Reese, Managing Director and Stuart O'Sullivan, Associate Director, Protiviti

The Financial Conduct Authority (FCA) is introducing the Consumer Duty to provide retail customers higher and clearer standards of protection. But how are firms preparing for implementation of the new rules? Protiviti recently held a roundtable with invited representatives from the FCA and risk professionals from the U.K. financial services industry to discuss implementation concerns and challenges.

Financial services firms have an opportunity to make themselves more competitive and sustainable under the FCA’s new Consumer Duty, but some are concerned about the time and resources it will take to implement. The final rules, which were published in July 2022, will come into force on a phased basis from the end of July 2023.

The Consumer Duty applies to all organisations in a firm’s supply chain for products and services sold to retail customers. It calls on them to act in good faith and avoid causing foreseeable harm to customers. A significant shift from the FCA’s July 2006 Treating Customers Fairly initiative, it holds firms accountable for delivering good outcomes to retail customers in four key areas: products and services, price and value, consumer understanding and consumer support.

Ian Searle, Head of Consumer Policy and Outcomes at the FCA, noted during the discussion that the FCA’s goal is to promote a competitive financial services industry that puts customers’ interests first.

While the FCA has said that firms’ boards should have signed off on implementation plans by 31 October 2022, Searle said that the deadline does not require the plans to be comprehensive. Rather, the plans should be sufficiently developed to give the FCA confidence that they will be implemented on time. The FCA understands that in the interim enhancements will be made to some plan components. 

Protiviti conducted an online poll during the roundtable to gauge whether participants have concerns about the new rules. Most respondents acknowledged Consumer Duty is a positive change and would help them place customers at the centre of their plans. However, the responses also revealed doubts about embedding the new rules consistently across the organisation.

Stuart O’Sullivan, Associate Director at Protiviti, noted that although some firms consider the Consumer Duty an opportunity, others are seeking minimal compliance. He affirmed that large firms face challenges finding a consistent approach to implementation because of significant headcounts and geographic footprints, and that most firms want clarity on providing evidence that they are compliant.

A chief risk officer (CRO) at the roundtable asserted that the Consumer Duty is a paradigm shift and one of the biggest customer-wide programmes ever to be implemented in the financial services industry. She indicated that as an approach to implementation, her firm found it useful to conduct a gap analysis across business units. Her firm has presented its action plans for the four outcomes to the board and is in the process of rolling them out. She said that facilitating ongoing conversations about the rules across the organisation is critical to that process and embedding the rules in a firm’s culture. She emphasized that as firms increasingly view the rules as a mechanism to improve customer outcomes rather than a compliance exercise, their reputations will improve.

Beyond the 31 October 2022 deadline and ahead of the first phase of implementation next summer, the panellists encouraged firms to focus on the following three areas:

• Understanding customer behaviours: Firms should consider the outcomes of customer responses and the information they have received about products and services. Do customers understand what they are buying? Are they absorbing the information provided? Are they coming back because they didn’t understand?
• Developing communications: Firms should make communications not only clear, fair and non-misleading, but also engaging and useful. Further, they should use customer feedback for continuous improvement.
• Minimising foreseeable harm: Firms should revisit lessons from the COVID-19 pandemic to understand and forecast customer vulnerabilities arising from the cost-of-living crisis.  

Protiviti’s Consumer Duty Roundtable was held online on 18 October in conjunction with the FCA. For more information about the new regulation and its impact on your firm, please contact Bernadine Reese bernadine.reese@protiviti.co.uk or Stuart O’Sullivan stuart.osullivan@protiviti.co.uk.

The views, opinions and positions expressed within guest blogs are those of the authors and do not necessarily represent those of the BSA.