Consumer Duty: implementation

The Consumer Duty Instrument 2022 implements changes to the Financial Conduct Authority (FCA) Handbook mainly through changes to definitions, the Principles for Business (PRIN) and the Code of Conduct (COCON). There is also new non-handbook guidance issued by the FCA, coupled with various policy statements and guidance on implementation.

So, what should implementation look like? 

The FCA has taken an assertive approach to the implementation period. Key deadlines to note are:

31 October 2022: This is the date by which all firms should agree their implementation plan and maintain oversight of their delivery to ensure the implementation work is sufficient to meet the consumer duty standards.

30 April 2023: Manufacturers should aim to complete all the reviews necessary to meet the four outcome rules for their existing open products and services and share the necessary information with distributors.

31 July 2023: This is the date by which all new products and services should be compliant with the consumer duty standards.

31 July 2024: This is the date by which all closed products and services should be compliant with the consumer duty standards.

Here are the key takeaways for firms on implementation: 

Governance is key

Firms and their boards (or equivalent) must ensure that they take responsibility and allocate appropriate and sufficient resources to develop their implementation plan.

Senior managers must engage with the development and implementation of the implementation plan and firms must take a proactive approach to ensuring that they are on track to achieve their implementation plan. People management policies and practices, including pay and bonuses, will be critical. Firms should consider now what resources and budget will be required to implement the implementation plan successfully. 

It is important that firms do not just see this as a compliance issue. Firms with in-house legal teams should be fully 'plugged in' and be aware of the steps being taken by the firm to develop and implement the implementation plan. The FCA has made it clear that boards (or equivalent) and senior managers must embed a culture in which good outcomes for consumers is central. A leadership team which truly places Consumer Duty at the very heart of the business and lives and breathes the four customer outcomes in its strategic thinking will be critical to embedding a positive culture across the business. A culture which is set and lived from the top-down is the most effective way of setting the tone across the firm. 

The FCA has also updated its guidance on the appointment of a Consumer Duty Champion. This role is not a prescribed responsibility under the Senior Managers & Certification Regime. The FCA expects the Champion to be an Independent Non-Executive Director. In larger organisations, the FCA expects an appropriate individual at board level is appointed as the Champion. Whilst the appointment of a Champion is not mandatory, the FCA has made it clear that it expects a Champion to be appointed. The Champion will be responsible for discussing the Consumer Duty and ensuring that the Consumer Duty permeates through the entire organisation, so it goes hand in hand with the idea that firm should have a culture embedding Consumer Duty.

Keep a proper audit trail 

The importance of record keeping has been reiterated by the FCA. Firms need to be able to show that they are thinking about implementation and have processes in place to develop their implementation plan and to implement the plan. This includes keeping proper records of board minutes as well as draft and final papers.

The FCA has made it clear that “firms can expect at every stage of the regulatory lifecycle to be asked to demonstrate how their business model, the actions they have taken and their culture are focussed on delivering good consumer outcomes”. Firms will be expected to provide their annual report and other MI and should prepare to be challenged by the FCA.

Review, review, review

Firms should review all of their policies, procedures, practices, products, and services. This is key to ensuring that anything that needs to be changed is identified and a plan (as part of the implementation plan) can be put in place to make those changes.

It is also important for firms to ensure they can identify which products are closed products, so that they can build additional time into their implementation plan for implementation of the Consumer Duty in relation to closed products.

The concept of review also includes firms reviewing their implementation plan, as the FCA expects implementation plans to have been scrutinised and challenged.

In a recent update, the FCA has published guidance on October implementation plans which says that there is no need for all work required to be fully scoped by October, but just an outline of how things will be embedded to ensure timely implementation of the Duty. It is, however, likely that the FCA’s expectation is that implementation plans are 'pretty much there' and close to completion, if not already completed.Firms should have their implementation plans ready in advance of the end of October scramble.