Navigating the FCA's New Consumer Duty: Insights and Action Steps

Navigating the FCA's New Consumer Duty: Insights and Action Steps for 1POINT1

Firms are required to provide better customer care through the Consumer Duty, a significant regulatory move initiated by The FCA. The retail financial sector is particularly affected by this initiative. The Consultation Paper (21/36) being released in December 2021 has prompted firms to prioritize understanding and getting ready for the changes that will be coming. Why is this? This section delves into what the Consumer Duty is and provides guidance on how firms can meet these new regulations..

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Understanding the Consumer Duty

The Consumer Duty marks the beginning of a shift towards more customer focused regulation, with an aim to ensure that good outcomes are delivered by firms to their retail target. The duty is a continuation of the Treating Customers Fairly (TCF) principle, which mandates companies to actively advocate for their customers and compete based on the outcomes they produce. In July 2022, the final regulations will be implemented, with a compliance deadline of April 2023.

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The Significance of Consumer Duty

Despite recent evidence the FCA's focus on consumer outcomes has been overshadowed by figures showing that confidence in the UK financial services industry remains low, particularly among vulnerable and over-indebted consumers. The aim of the Consumer Duty is to combat these issues by creating a more just, transparent, and consumer-centric market. Firms must ensure that customer concerns are prioritized in their operations as a result of the FCA's efforts to promote an improved level of care across the industry.

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Challenges and Preparations for Firms

The implementation of the Consumer Duty will undoubtedly present challenges for firms. These include:

1. Organizational Integration: The new rules will permeate all levels of a firm, impacting product governance, service design, distribution, and delivery processes. Firms must ensure that the principle of delivering good outcomes is embedded throughout their operations.

2. Magnitude of Change: Firms will need to invest significantly in data and technology to monitor, assess, and evidence the outcomes their customers receive. This may necessitate the withdrawal of certain products or services that cannot meet the new compliance standards.

3. Continuous Compliance: Compliance with the Consumer Duty is not a one-time exercise. Firms will be required to report annually on their adherence to the new standards, ensuring ongoing commitment to delivering positive customer outcomes.

4. Short Timeframe: With a nine-month window for compliance, firms must act swiftly to align their practices with the new rules.

5. Application of Rules: There are questions regarding the practical application of the rules and the potential for differing interpretations by the Financial Ombudsman Service. Firms must seek clarity and ensure they fully understand their obligations.

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Action Steps for Firms

To navigate the challenges posed by the Consumer Duty, firms can take the following preparatory steps:

1. Deep Understanding of Consumer Duty: Firms should thoroughly comprehend the details of the Consumer Duty, including the higher standards it imposes compared to TCF principles. Consultation Paper 21/36 provides valuable insights into the practical application of these rules.

2. Engage Senior Managers: Senior managers must be fully aware of their responsibilities under the new duty. Their leadership is crucial in embedding the required standards across the organization.

3. Assess and Implement Changes: Firms need to evaluate their current practices and identify areas requiring change. This includes reviewing product and service designs, customer journeys, and related policies to ensure they facilitate well-informed customer decisions.

4. Demonstrate Fair Value: Firms must demonstrate that their products and services offer fair value, balancing the benefits provided to consumers against the costs. This is particularly important for vulnerable customers who may be at greater risk of receiving poor value.

5. Monitor Consumer Outcomes: Continuous monitoring of consumer outcomes is essential. Firms should leverage data analytics and customer feedback mechanisms to proactively prevent foreseeable harm and improve customer experiences.

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Conclusion

The FCA's Consumer Duty represents a significant shift in the retail financial sector. The proactive preparation of firms not only ensure compliance but can lead to improved customer relationships. A chance to improve customer trust, loyalty, and satisfaction is presented by this regulatory advancement. We at 1POINT1 believe that by introducing the Consumer Duty, we are creating a more customer focused environment in which firms and their clients can benefit. Why? These preparations can help firms navigate the Consumer Duty requirements and build stronger, more resilient customer relationships.

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