The FCA’s Proposed Consumer Duty: The Next Step

May 2021 saw the publication of plans for a new Consumer Duty from the UK’s Financial Conduct Authority (FCA). This initial stage outlined the FCA’s high-level proposals to deliver this Duty, entering a period of consultation for interested parties to offer their feedback.

In December 2021, as planned, the FCA began a second consultation—CP21/36. This second phase aims to deliver more detail about what exactly is being proposed, incorporating key feedback from the initial consultation period.

So, what’s changed and what does this mean for the UK’s financial services sector?

The main focus is still that financial services firms have a duty to ensure customers make the most of their money, with organisations taking responsibility to develop accessible products and services which underpin sound financial decisions, delivering strong financial outcomes every time. This overarching message remains unchanged since May 2021.

What Is the Proposed Consumer Duty?

There are three key elements as defined in CP21/36:

1) Consumer Principle – A firm must act to deliver good outcomes for retail clients

2) Cross Cutting Rules – Firms must:

• act in good faith toward retail customers

• avoid foreseeable harm to retail customers

• enable and support retail customers to pursue their financial objectives

3) Four Outcomes — The key elements of the firm/customer relationship, determining how financial services organizations design, sell and service their products and services. They are outcomes that describe the conditions needed for consumers to be able to obtain fair value.

• Consumer understanding

• Products and services

• Consumer support

• Price and value

What’s Changed With CP21/36?

CP21/36 brings into play the 235 responses the FCA received in relation to the initial consultation, explaining how this feedback has been considered and applied, resulting in the draft rules and guidance that are explained in this second consultation paper.

The FCA explains that the cross-cutting rules and four outcomes still apply, but it provides more details about the FCA’s expectations, as well as removing the ‘all reasonable steps’ from the cross-cutting rules. The new paper confirms that the Consumer Duty Principle will become Principle 12 in the FCA’s list of overarching principles. It also outlines that, given the overlap, Principles 6 and 7 will be disapplied when the Consumer Duty is applied, helping to answer the question about how the new regulations will work alongside existing guidance.

With a view to publishing a final set of rules and guidance by 31 July 2022, ready to come into effect in April 2023, the FCA is now consulting on these rules, with a 15 February 2022 deadline in place for all feedback.

What Does This Mean for UK Financial Services Organisations?

In light of the fact that we now have an initial draft of specific rules and guidance, not to mention that the FCA is proposing just a nine-month implementation window, financial services businesses really should already be considering how the new duty will impact their operations.

Obviously financial services firms can’t make any definitive changes to their processes until the Duty is finalized, but now is a good time to fully assess your customer offering. What impact the new Consumer Duty will have on your business is highly dependent on the size and scope of your organisation’s operations, so trying to determine just what impact the new regulations will have on your business is paramount.

A good place to start would be to analyse how big of a gap exists between how you currently operate and how you’ll be required to operate from April 2023, as well as looking at what management information you will need to fulfil your new responsibilities. At the same time, there’s a real need to examine and assess the customer journey, highlighting any improvements to be made, not just for the purposes of compliance with the new Consumer Duty, but to improve customer experience too.

As the FCA’s second consultation is underway and we have more meat on the bones as to what the new Consumer Duty will actually look like, now is the ideal time to start planning for the impending changes. In-depth customer feedback and information will prove vital, providing the insight and oversight needed to ensure you’re doing everything you can to protect consumers at every step of the way, while fulfilling your regulatory requirements.

Aptean Respond is well-placed to make sure you have the relevant, contextualized information you need to get Consumer Duty ready. If you’re a financial services organisation looking for support in preparing for the new Consumer Duty, please get in touch today.