Consumer Duty – where are we following the recent FCA implementation feedback?

Across the Financial Services sector, focus is sharpening as we find ourselves just four months away from the implementation deadline for Consumer Duty, where firms will be expected to have completed core activity to meet the new requirements.

The regulator’s communications drive – including attendance at a series of webinars and industry events – has been noticeably proactive. However, many firms are still asking themselves if they are doing enough to meet expectations for July’s deadline.

In January, we saw the Financial Conduct Authority (FCA) release its long-awaited review of the board-approved implementation plans of some of the larger firms, published, in its words, to “help all firms understand our expectations and implement the Duty more effectively”. This was one of the first, formal feedback reports it has released on implementation progress. So, what did we learn?

As expected, the reviews were mixed and reflected what we have seen from our work with firms across the sector. With the regulator having been less prescriptive in its requirements, we have witnessed varying approaches from firms in creating their implementation plans – meaning some divergence in outcomes.

Clearly, we need to be mindful that a lot will have progressed since October 2022, when Boards were required to sign off plans, as firms have matured in understanding and appreciation of the complexity of implementing the rules. However, the review should have served as a clear message from the FCA that it is not looking to relax its expectations for changes firms need to embed, nor, critically, the deadline they must meet.

What did the FCA’s findings tell us?

Within the review, the FCA restated its expectations and provided examples of good practice and areas for development it had observed, focusing on six core areas. A lot of emphasis is placed on having the right oversight and monitoring through data, demonstrating the ability to deliver, both in time and to meet the substantive duty requirements, and showing steps to embed within people and culture strategy.

Here are some headlines from the review:

• Some firms did not have the right Executive level oversight and drive through ‘Champions’ to ensure effective implementation management.
• Key areas of risk, like third party dependencies, were not fully articulated and therefore not being managed. This put further focus on the end of April deadline, where manufacturers need to have completed their review and remediation of products and shared information with distributors.
• Many firms were lacking a clear logic for prioritisation of activity, particularly product and service reviews, and potentially relying too much on past compliance as evidence for future compliance within an outcome focused, consumer duty environment.
• Too many firms were not giving enough thought to data strategy based on how their approach to measuring outcomes needed to change. We have also seen examples where firms are manually stitching data together across business lines to measure performance, rather than rethinking how to build the right data foundations and architecture to evidence good outcomes.

Our view

The FCA’s findings were broadly consistent with what we have seen across our work supporting firms across the sector. Most firms recognise the value and importance of getting it right for their customers and are making progress in implementing the rules. However, many were perhaps caught out by the scale of change and effort required to implement a culture-focused regulatory change, like Consumer Duty, where every element of the business is impacted.

Whilst primary focus will remain on resourcing to execute the implementation plans as agreed, firms need to be mindful of their growing backlog of activity which has been “de-prioritised”, where they have narrowed their focus on a critical path to implementation. Getting to grips with, and effectively prioritising and structuring this work, will be critical to demonstrating an appropriate level of control during supervisory meetings with the regulator.

Given the problem statement posed by Consumer Duty, top of this list should be implementing a sustainable data strategy to help embed good outcome focus, to measure, monitor, intervene and improve continuously. Without this, firms are likely to be facing increased scrutiny about the accuracy and availability of data to effectively evidence their impact in meeting the four outcomes. Indeed, newly available data will likely provide quick answers on whether firms missed key hot spots of harm in their product/journey reviews. Collaboration across teams in this is essential to creating a ‘by design’ compliant approach to customer experience, product journeys and effective monitoring and oversight.

Firms are increasingly recognising that rather than being the end date for their work on Consumer Duty, July has become the start date of a new era of outcome focused compliance.

Capgemini is partnering with firms across the industry to help them understand the impact of Consumer Duty on their business model and strategy and providing the expertise of our global regulatory teams to accelerate execution activity.