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A new Consumer Duty: the final rules

Graeme Stewart

Graeme Stewart

3 August 2022

Well, the wait is finally over and we now have Policy Statement PS 22/9 and Finalised Guidance FG 22/5. Published early morning on the 27th July, there was over 280 pages to read with your breakfast, that’s a lot to read and digest. 

The FCA has, not surprisingly, delayed the full implementation of the Consumer Duty until the end of July 2023 (originally the implementation date was to be April 2023).  

But what we didn’t see coming and will no doubt provoke many, many comments is that the FCA have clear expectations that by the end of October 2022, in a few weeks really, a firm’s board (or equivalent management body): “Should agree and implement plans and maintain oversight of their delivery, to ensure the implementation work is sufficient to meet the Duty standards”.

This is going to be a huge ask, particularly for smaller firms.

The FCA sets out how the Consumer Duty requirements link closely with their objectives:

Consumer Protection: “The Duty sets out a higher, clearer standard by requiring firms to ensure that their products and services are fit for purpose and offer fair value.”

Effective competition in the interests of consumer: “The Duty will create a fairer and more consumerfocused playing field on which firms can compete and innovate in pursuit of good consumer outcomes.”

A further toughening in the wording between the last Consultation Papers (CPs) and the final rules and guidance is with regard to the ongoing governance and monitoring arrangements. In the CPs firms were required to ‘Review and approve an assessment of whether the firm is delivering good outcomes for its customers which are consistent with the Consumer Duty, at least annually’.

The FCA now says that this assessment will be part of the evidence they will use to assess a firm’s compliance with the Duty. They expect to be provided (on request) with this ‘report’ and the MI that sits behind this. The FCA has suggested that firms may appoint a Consumer Duty ‘Champion’ to co-ordinate their planning.

This, at least annually report, will need to include:

  • the results of the monitoring that the firm has undertaken to assess whether products and services are delivering expected outcomes in line with the Duty, any evidence of poor outcomes, including whether any group of customers is receiving worse outcomes compared to another group, and an evaluation of the impact and the root cause  
  • an overview of the actions taken to address any risks or issues  
  • how the firm’s future business strategy is consistent with acting to deliver good outcomes under the Duty  

Before approving or ‘signing off’ the assessment, the board or equivalent governing body should agree any actions required to be taken to address any identified risks identified, or take action as required to address poor outcomes experienced by customers uncovered by the assessment and agree whether any changes to the firm’s future business strategy are required. 

Firms will immediately need to think about what their plans are to meet the Consumer Duty rules and expectations. They will need to quickly determine what management Information they have in place (and as important, maybe don’t currently have in place and will need to obtain) to monitor and review the outcomes their customers are experiencing to ensure that they are delivering outcomes consistent with the Consumer Duty. 

The FCA provides a list of potential sources a firm may wish to collect information from, but it is not just where the information is coming from firms will need to consider:

  • Who is going to see this information?
  • How will it be monitored and challenged?
  • How will the firm evidence that it is truly listening to what the MI is telling them?

Where these outcomes are not being achieved, they will need to investigate and understand why. Action will need to be taken to address root causes and ensure governance arrangements are quickly changed and adapted to stop such outcomes occurring again.

The focus again is very much building on the SM&CR expectations of having a culture in the business that is customer centric, where putting the customer first is habitual and instinctive over and above any rule(s) that may or may not be in place.

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Paradigm Mortgage Services LLP is a Limited Liability Partnership.