As firms continue to get ready for the Consumer Duty, the FCA has published a series of ‘Dear CEO’ letters designed to support firms as they progress with their implantation plans. In this article, we focus on the letter addressed to the ‘consumer investments’ sector and the areas that firms should be focussing on in the immediate future.

Reminder of the Consumer Duty implementation timeline

How should firms embed the Consumer Duty?

The FCA letter sets out four initial areas where particular focus is needed from firms in the consumer investments sector:

1. Mainstream investments: Consumers are at risk of receiving services that do not meet their needs or represent poor value. Firms are expected to identify these risks, and address them where they arise.

 

2. Higher risk investments: Some consumers continue to be invested in unsuitable high risk investments. Firms need to ensure that their products and services are appropriately designed for the needs and objectives of their target market, and that they are being promoted and distributed effectively. The FCA is particularly concerned that the design of trading apps may lead to poor consumer outcomes, a topic that we covered in our previous article: ‘FOMO, gamification and the Consumer Duty: retail brokerages take note’.

 

3. Scams and fraud: Too many consumers are still losing money due to scams and fraud. Firms must act to avoid causing foreseeable harm to their customers and help stop them falling victim to scams and fraud.

 

4. Consumer redress: Firms are expected to act in good faith when they identify they have caused harm (either though action or inaction), and to take appropriate action to rectify the situation, which may include redress. Redress should be paid promptly when it is due.

 

Feedback on Consumer Duty implementation plans

The FCA published feedback for firms on implementation plans on 25 January. Here are the highlights:

1. Effective prioritisation: Firms should make sure they are prioritising effectively, with a focus on the areas that will make the biggest impact on outcomes for consumers.

 

2. Embedding the substantive requirements: Some plans suggested firms may have considered the requirements superficially when deeming existing policies and procedures to be adequate. Carefully consider the substantive requirements of the Duty to identify and make the changes needed to meet the new standards.

 

3. Working with other firms: Firms need to share information and work closely with their commercial partners to make sure they are all delivering good customer outcomes. The FCA has found that some firms need to accelerate this work to implement the Duty on time.

 

Firms’ boards and management bodies should particularly focus and provide challenge on the three areas above, as well as the wider points in the feedback published online.

What are the next steps?

The FCA regards the Consumer Duty as a cornerstone of its three-year strategy. It is being “prioritised at every level of the FCA, from the Board down, and it will drive our supervision strategies and prioritisation”. Firms should be prepared to provide evidence of their Consumer Duty implementation plans and the changes that have been made to the firm’s business in order to comply with the new Principle 12. The FCA will be engaging with firms, acting faster and more assertively where firms are failing to meet the requirements of the Duty.

What are the key takeaways for firms?

The FCA has been relentless with its publications on the Consumer Duty of late. This will be a top priority for the UK regulator and firms need to ensure they are giving it appropriate attention. The ‘Dear CEO’ letter did not contain much new information, but it did repeat a number of requirements that firms would do well to take note of:

• Boards and senior management should embed the interests of customers into the culture and purpose of the firm.
• Do not underestimate the new requirements of the Duty. Where firms determine that existing policies and procedures re adequate to meet new requirements, we recommend that firms retain evidence the analysis that led them to this conclusion.
• Think about the types and granularity of data you need to monitor and evidence consumer outcomes.
• Contact firms with your distribution chain to ensure that information requests are made and met in time to allow each firm to comply with its obligations under the duty.
• Principal firms should have appropriate controls to effectively oversee their appointed representatives (AR) and ensure that ARs comply with the Duty.
• Co-manufacturers must have written agreements in place outlining the responsibilities of each party.

 

Remember…..the Duty does not apply retrospectively to actions by firms before it came into force, but it will apply from the implementation dates to existing products and services.

How can C&G help?

We are working with our clients to ensure they can deliver on implementation plans by the dates on which the Consumer Duty becomes effective in April and July 2023.

If you would like us to review your implementation plan, or need help with any aspect of the Consumer Duty, contact us today.