On 31^st July 2023 the Consumer Duty enters into force for open products and services. However, the first key implementation milestone identified by the Financial Conduct Authority (“FCA”) is nearly upon us. This requires the governing bodies of in-scope firms to have adopted an implementation plan by 31^st October 2022. This article provides a short summary of what is expected.

What is the Consumer Duty?

The Consumer Duty is enshrined in a new Principle for Business (Principle 12) that will require in-scope firms to “act to deliver good outcomes for retail customers”. Principle 12 is reinforced by:

• cross cutting rules that set out standards of conduct expected of firms engaged in retail business;
• four desired outcomes in the areas of:
  1. consumer understanding: providing information that helps consumers make informed financial decisions;
  2. products and services: are designed and offered to meet a consumer’s needs;
  3. consumer support: that is responsive to, and considerate of, a consumer’s needs;
  4. price and value: ensuring this is fair in view of the benefit a product or service offers a client; and
• extensive guidance (Finalised Guidance 22/5 (“FG 22/5”) to help firms deliver the desired outcomes.

Consistent with the Senior Managers and Certification Regime (“SMCR”), an in-scope firm’s senior management is ultimately accountable for the implementation of the Consumer Duty. FG22/5 makes clear that senior managers are expected to drive a firm’s planning efforts, execution of its plans and monitoring of compliance with the Consumer Duty thereafter. To this extent, a new conduct rule (conduct rule 6) is also being introduced. This will require that persons involved in retail activities:

“act to deliver good outcomes for retail customers’ where the activities of the firm fall within the scope of the duty”.

Who and what is in scope of the Consumer Duty?

To recap briefly, the Consumer Duty will apply to all firms involved in the:

• manufacturing;
• provision;
• sale; and
• ongoing administration

of retail products and services that are regulated in the UK. This includes:

• firms authorised under the Financial Services and Markets Act 2000 (“FSMA 2000”);
• firms in the e-money and payment services sector; and
• deposit takers.

“Retail” includes:

• persons categorised as “retail clients” where categorisation obligations apply;
• in the case of services provided by deposit takers, e-money and payment services firms:
  • consumers;
  • micro-enterprises; and
  • trustees who are natural persons.

What does a firm whose activities will be caught by the Consumer Duty need to do by the 31^st October 2022?

The firm’s governing body (board of directors or equivalent) is expected to have adopted a plan to implement the Consumer Duty.  In Policy Statement 22/9 (“PS22/9”) the FCA states:

“By the end of October 2022, firms’ boards (or equivalent management body) should have agreed their implementation plans and be able to evidence they have scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standards.”

Our activities will be subject to the Consumer Duty. How detailed will our implementation plan need to be by 31^st October 2022?

In a speech made on 29^th September 2022, Sheldon Mills, Executive Director, Consumers and Competition at the FCA clarified that:

“We do not expect firms to have necessarily fully scoped all work required to embed the Duty by the October deadline, but firms’ plans should be sufficiently developed to provide their governing bodies and us with assurance that the Duty will be fully implemented for new and existing products by next July.”

Will we need to send the implementation plan to the FCA?

The FCA could request a copy of your firm’s implementation plan. Again, quoting excerpts from PS22/9:

“Firms should expect to be asked to share implementation plans, board papers and minutes with supervisors and be challenged on their contents.”

“For fixed firms, which have a dedicated supervision team, we will also request and regularly review implementation plans and use proactive engagement and annual strategy meetings to assess progress with implementation.”

“We will also carry out multi-firm work focused on high priority portfolios / issues and develop a series of metrics to measure progress”.

We believe that our firm is only active in the wholesale market. Do we need to worry about this?

Your firm needs to consider if its activities could have a “material influence” on the provision of products and services to retail clients. For example, if a firm:

• designed a product for sale to retail clients;
• does not distribute the product itself; but
• engages with third parties for this purpose

it is likely to be subject to the Consumer Duty even if the third parties face the retail clients contractually.

It is recommended that a wholesale firm document its assessment of whether it has a material influence on retail market business.

How C&G can help

C&G’s consultants have broad experience of retail business operations and can provide support to firms with:

• developing their implementation plans;
• training staff; and
• reviewing or developing documentation

to help prepare for the entry into force of the Consumer Duty.

Please contact us for more information.

References

2022. Mills, S. What firms and customers can expect from the consumer duty and other regulatory reforms. Financial Conduct Authority. Available: https://www.fca.org.uk/news/speeches/what-firms-and-customers-can-expect-consumer-duty-and-other-regulatory-reforms (last accessed 30th September 2022).
2023. A new Consumer Duty: Feedback to CP21/36 and final rules, Policy Statement 22/9. Financial Conduct Authority. Available: https://www.fca.org.uk/publication/policy/ps22-9.pdf (last accessed 30th September 2022).
2024. Financial non-Handbook Guidance for firms, finalised guidance 22/5. Financial Conduct Authority. Available: https://www.fca.org.uk/publication/finalised-guidance/fg22-5.pdf (last accessed 30th September 2022).
2025. Consumer Duty key milestones. Financial Conduct Authority. Available: https://www.fca.org.uk/publication/documents/consumer-duty-detailed-timeline.pdf (last accessed 30th September 2022).