Consumer Duty – The Good, The Bad and The Ugly

Right now is no time to put your feet up if you are a financial services firm. The FCA is hot on the heels of all industry participants who are in scope of the Consumer Duty and driving forward both on assessing implementation to date and pushing milestones for the future. On 20 February 2024 the FCA published its “Consumer Duty firm survey - Autumn 2023” and its “Consumer Duty implementation: good practice and areas for improvement”. So….is it the “Wild West” out there?

Well…..only in part. The key message from the FCA's Autumn survey is positive and there have been improvements since it last conducted a survey in Spring 2023 with 43% of the firms making up the survey sample reporting “not having difficulty with implementing any aspects of the Duty”, some sectors that were outliers making improvements and catching up with other sectors and more firms conducting relevant activities in respect of several key elements of the Consumer Duty. However, there are still some significant areas for improvement including around outcomes monitoring, consumer contracts and marketing strategies.

With the deadline for full implementation only five months away, there is still work to be done on the range of activities required to embed the Consumer Duty and ensure that these activities can be evidenced. The FCA will be undertaking work to check that firms are embedding the Duty and delivering good consumer outcomes and can be expected to take assertive action where it finds that standards are falling short. Over the next few months we can expect to see the FCA conducting more thematic work to address issues and harms, focus in on specific sectors where there are common themes and risks, and intervene in cases where it has concerns about the approach that individual firms are taking. 

The “good practice and areas for improvement” piece is illustrative and packed with examples of how firms are making headway in delivering “better outcomes for their customers”. These examples will likely be helpful for many of the firms currently grappling with ongoing implementation challenges. Some of the key takeaways are summarised below:

• Firms need to embrace good culture and good governance in order to be able to comply with the requirements of the Consumer Duty - firms need to be proactive in delivering good consumer outcomes and that involves management and boards getting their hands dirty in reviewing, identifying and monitoring consumer outcomes and making sure that they are satisfied with the outcomes that they are delivering for their clients
• Firms need to ensure that they can identify whether they have any consumers who are vulnerable within their customer demographic - firms need to understand what “vulnerable” looks like and ensure that their staff, systems, processes and operations can deal with vulnerability so that they can support vulnerable customers and ensure that the outcomes for them are as good as they are for other customers
• Firms need to provide products and services that are fit for purpose and which meet the needs, characteristics and objectives of the consumers of them - firms must carefully define their target markets and ensure that their products and services are sold correctly, this includes looking at distribution chains and strategies and examining all parties and places and other links in those chains where there is influence over consumer outcomes
• Firms must ensure that their consumers get products and services that represent fair value for money - this might include the need to review pricing strategies, look at additional benefits and remove any unsuitable features of products or services, and to closely analyse consumer communications and support
• Firms must enable their customers to fully understand the products and services that they are offering - firms need to provide the right information, at the right time, and enable informed decision making in order to support customers to reach their financial objectives

Over the next few weeks in a series of related blog posts, we will look at some of these themes and related questions in more granular detail, for example:

• Board buy-in and embedding the Consumer Duty - what does good governance for these purposes really look like?;
• What exactly is the state of being “vulnerable” and how do you identify it?;
• Analysis of the customer demographic, target markets, distribution and supply chains;
• Marketing and promotions;
• Fair value; and
• The need for firms to support the entire consumer journey.

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Reported improvements in complying with the Duty are a positive trend that must continue towards and beyond the upcoming full implementation deadline on 31 July 2024. Firms need to be sure they are not only undertaking the necessary activities to embed the Duty, but also that they can evidence this activity, delivering good consumer outcomes. This will be mirrored in the FCA approach.......

https://www.fca.org.uk/data/consumer-duty-firm-survey-autumn-2023#:~:text=In%20Spring%202023%2C%20we%20commissioned,services%20of%2031%20July%202023.