Time has come to prepare for the consumer duty

For instance, while consumer communications have noticeably improved in recent years, there are still too many instances of misleading information being communicated.

This can leave consumers only partially informed when making decisions.

Some firms can be found guilty of being less concerned about servicing the customers already on the books, as opposed to the prospects they are trying to get through the door in order to meet commercial objectives.

In part, the FCA is trying to address what it considers to be a lack of permanence when it comes to advances in consumer protection.

Where it is at the top of boards’ agendas there is often a flurry of activity, but when other, more recent and pressing priorities take over progress tends to slow.

Through the duty, the FCA is hoping that consumer outcomes will always remain high on firms’ agendas, so that it does not continuously have to force companies to act.

The three cross-cutting rules of the consumer duty require that firms:

• act in good faith;
• avoid foreseeable consumer harm; and
• enable customers to pursue their financial objectives.

Again, these are themes that firms will have come across before and the FCA is not looking to radically overhaul any firm or sector’s business practices, but is more interested in enhancing firms’ existing business and operating models.

It wants firms to think, and prove they are thinking, about consumer outcomes across their entire distribution chain.

This includes all stages of product manufacturing and distribution, as well as service execution and ongoing consumer support. 

The need to demonstrate that they are considering consumer outcomes across the entirety of their distribution chain means that firms will have to go much further than tick-box compliance.

This in many ways represents the continuation of the regulatory trend; regulators are trying to dig deeper into the mindset, embedded internal workings and consumer instincts of organisations.

They want those they regulate to think of the consumer first in all their decision-making.

What do firms need to do before April?

The degree of change required by the duty will vary from firm to firm.

As a starting point, all firms should review the FCA’s expectations against each element of their business, so they have a clear picture of what they need to do. 

Even though we are still waiting for the policy statement, the most recent consultation paper set out the FCA’s proposed handbook rules changes, as well as outlining what the regulator will consider ‘good’ to look like.

Firms can make the most of this information by undertaking a maturity assessment of their current practices, putting in place actions to remedy any weaknesses they discover.

To get a full picture of the changes they need to make, firms will need to map out each stage of their distribution chain and consider which of the four outcomes will affect which stage of that chain.

After this mapping out exercise, firms should assess the new rules under the duty, looking for where further work is required to become compliant.