Consumer Duty represents an essential step in the regulator’s efforts to address the ‘Consumer Priorities’
The Financial Conduct Authority’s (FCA) final rules and guidance on the new Consumer Duty represent an essential step in the regulator’s efforts to address the ‘Consumer Priorities’ set out in its 2021/22 Business Plan with a proposed implementation deadline of April 2023.
The new rules seek to remedy consumer harm resulting from poor practices by firms operating in the retail financial markets. The FCA intends that this higher standard of conduct and consumer protection under the new duty will see consumers benefit from improved outcomes realised across all stages of the client journey, considering their individual circumstances.
Entire product lifecycle of regulated activities
The new Consumer Duty rules will apply to all FCA regulated firms that provide products and services to retail clients. This includes firms within the entire distribution chain that can influence material aspects of the design, target market or performance of a retail financial product or service.
The rules apply throughout the entire product lifecycle of regulated activities for retail business and unregulated activities which are ancillary to the regulated activity. Whilst the rules are not retrospective and will apply on a forward-looking basis from go-live, firms still need to consider existing products and services where appropriate.
Understanding your firm’s business model
As with most regulatory change initiatives, firms need to start with a gap analysis of their current state environment against the rules. Understanding your firm’s business model and activities will bring you into the scope of specific requirements that will present the first obstacle to overcome.
Amongst other complexities, firms need to consider the inclusion of ancillary activities concerning a regulated product or service provided to a retail client and the concept that a client should still be treated as a retail client for the purposes of consumer duty, even where the firm does not have a direct relationship with them.
Delivering good client outcomes
Care should be taken not to assume that existing obligations to meet certain rules and activities to support these automatically render your firm compliant with the Consumer Duty. You need to be able to demonstrate how your business model, the actions you have taken, and your culture are focused on delivering good client outcomes at every stage of the regulatory lifecycle.
Also, firms should capitalise on the opportunity to address any shortfalls against existing requirements in parallel with meeting the Consumer Duty requirements, which will offer delivery efficiencies and cost benefits.
Effectiveness of existing processes
Completing gap analysis will drive the impact assessment and subsequent requirements for any remediation activity. As the application of the rules should be proportionate, the effort required by firms will depend on their role within the distribution chain, their relationship with the end client, and the level of compliance and effectiveness of existing processes already in place.
Even where existing processes are in place that can support Consumer Duty, firms need to take this opportunity to reassess whether they are meeting the standard expected by the regulator.
For most firms, the implementation focus will likely cover six key areas:
1. Consumer Duty solution design
2. Products and services remediation activity
3. Data, analytics, and monitoring
4. Governance and Board Reporting
5. Culture, Senior Managers Regime (SMR), Certification Regime (CR), and Conduct Rules
6. Operating Model Design, transition to Business As Usual (BAU), and deliver training
Is your firm prepared for the challenges and opportunities?
To learn more about the unique nature of the challenges and opportunities related to Consumer Duty, which shows why firms that take a holistic and strategic approach stand to realise tangible business value beyond mere compliance — please get in touch with Goldmine Media — call: 0845 686 0055 or email: findoutmore@goldminemedia.co.uk.
