The sample of plans from larger companies indicated that firms understood the requirement to deliver good customer outcomes, which is an aim of Consumer Duty. Firms were also found to have put together “extensive programmes of work” to make sure they are compliant.
The regulator warned that some firms were behind on their planning and risked failing to apply Consumer Duty effectively by the time rules come into force on 31 July.
For example, the regulator requires firms to appoint a Consumer Duty champion at board level or equivalent to challenge how firms are implementing the Duty and ensuring good outcomes. It said most firms had done so and there was evidence that plans were being scrutinised.
However, among some firms there was insufficient evidence to show who was responsible or leading implementation as well as suggestions that the role of the Consumer Duty champion would be shared. The FCA said while it was not prescriptive over how this should be done, this was not what it intended as this could dilute the role.
The regulator said it expected the Duty to require a change in the culture of many firms. Some firms were found to have explained how their purpose and values aligned with delivering good customer outcomes, while others had little detail.
When it comes to the four outcomes of the Duty, products and services, price and value, consumer understanding and consumer support, some firms showed a good understanding and demonstrated how they would improve their products and services to deliver this.
Areas of focus
Over the next six months, the FCA wants firms to focus on:
- Prioritising: Firms should make sure they are prioritising effectively, with a focus on the areas that will make the biggest impact on outcomes for consumers.
- Making the changes needed: The FCA urges firms to ensure they are making the changes needed so consumers receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
- Working with other firms: Firms need to share information and work closely with their commercial partners to make sure they are all delivering good customer outcomes. The FCA has found that some firms need to accelerate this work to implement the Duty on time.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “The Consumer Duty will bring about a step change in the way financial services firms treat their customers and we welcome the work firms are doing to implement it. Given the scale of the reform, we recognise that some firms need to make significant changes. For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new Duty.
“Firms will also see the benefits of the Duty, with increased trust in the sector, more flexibility to innovate and in time fewer rule changes.”
The rules come into force on 31 July 2023 for new and existing products or services that are open to sale or renewal, and 31 July 2024 for closed products or services.
Industry cannot let up
Reactions from the industry commended firms for putting plans in place and stated that shifting to the rules required a sector-wide effort.
Vikki Jefferies, proposition director at Primis Mortgage Network, said it was great to see that the regulator’s review found many firms understood and embraced the rules.
She added: “It is important to note, that the new Consumer Duty regulations require a combined effort from lenders, networks and providers, each reliant on one another, to ensure strong positive outcomes for consumers. With this in mind, the next six months will be crucial for firms to work with their industry partners to iron out any concerns they may have.
“For brokers in a network, regulatory support is provided on an ongoing basis and networks will be interpreting consumer duty requirements and adapting processes and procedures to meet the required outcomes.”
Stuart Wilson, chairman at Air Club, said the rules would “reshape how advisers in the later life market do business”.
“However, we also found that some later life advisers were unprepared for the incoming step change, and as the FCA’s review of progress suggests, this is also true for the broader industry as a whole.
“Prioritising, making the changes needed and working with other firms should be the focus,” he added.
Roddy Munro, head of proposition specialists at Quilter, said: “Time is ticking in terms of getting processes and actions in place and this review highlights that as an industry we cannot take our foot off the gas.
“Given the professionalisation of the advice industry in the last decade and an increasing focus on value, many will be in a good starting position. It is this value that is so important, and it should not be confused for price. Clients and their families will value different elements of advice at different points over their lifetimes. As such we cannot look at price in isolation, but as part of the wider picture when evidencing value to clients. This Duty, therefore, presses home the point of having quality data collection for each product and service and ensuring the correct metrics are in place in order to remain compliant. We cannot rest on our laurels that we do much of this already.”
Munro added: “While the FCA hasn’t been overly prescriptive in what it is expecting, this should not be confused with a lack of certainty from the regulator. Indeed, detail and accountability are key.
“We have moved to an era of outcome-based regulation and as such providers and advisers need to take what they believe are the necessary steps to evidence good customer outcomes and fair value.”