In response to the second FCA consultation on the consumer duty, which closes today (February 15), trade association Pimfa, alongside providers in the industry, has urged the regulator to give firms more time to fully understand and implement the wide-ranging proposals.
Pimfa argued that while the FCA’s updated proposals carry more clarity for firms, there is still significant scope for subjectivity within them.
It said the proposed implementation period of nine months is insufficient and does not reflect the importance the FCA has itself placed on the duty’s wider impact on financial services.
Liz Field, chief executive of Pimfa, said: “In our ongoing discussions with the FCA we have consistently asked for further clarity on the proposals that they have put forward. To their credit, this updated package of measures, in combination with the draft guidance produced, is clearer on the FCA’s expectations of firms.
“However, there is still scope for further clarity, and we have asked for updated guidance on a number of issues, as well as explicit statements of the expectations of firms. Throughout this process we have been clear our concerns around the consumer duty are less about the ability of firms to comply with it on an ongoing basis and more about the broader implementation challenge associated with, and the inherent subjectivity of, the proposals.”
Field added: “We do not believe a nine-month implementation period is sufficient for firms to ensure the systems and processes they have in place are sufficient both to measure consumer outcomes and provide the level of reporting distributors will now have to send upstream to manufacturers.”
Pimfa said it believes a two-year implementation period would be more suitable.
The FCA first set out plans for a new consumer duty in May, stating it was designed to create a higher level of consumer protection in retail financial services.
In a consultation paper published in December, the FCA said it would press ahead with its proposed new consumer duty, with an implementation date of April 30, 2023, nine months after final rules are due to be published in July 2022.
This is arguably the biggest change to regulation since the RDR in 2013 and firms need to have time to digest and implement the change. Matt Burton, chief risk officer at QuilterAt the time, the FCA said it would move forward with the proposals, despite concerns from some firms around their proportionality and design, as well as any potential consequences.
Phased approach
Responding to the consultation, Aegon called for the FCA to carry out a phased implementation and it set out a range of areas where it believes the regulator could support effective implementation by providing further guidance.
Aegon said the impact the rules will have on various sectors will vary significantly and urged the FCA to prioritise issuing sector specific guidance to make sure firms have full insight into where the regulator expects greatest change in each sector.
It explained that this is likely to differ between distributors, pensions manufacturers, banks, general insurers and fund managers, allowing firms to prioritise implementation and deliver consumer benefits more quickly.
Steven Cameron, pensions director at Aegon said: “The new consumer duty is a hugely important multi-billion pound initiative and it’s important it’s delivered well. Against an already packed regulatory agenda, the timescales the FCA is proposing look very ambitious.
“The FCA is clear in its expectation that the new duty will involve a fundamental change in industry mindset, and a reset in conduct and culture. We support this and believe rushing implementation risks a more superficial approach.”
However Cameron explained that the implementation of an initiative of this scale and complexity would benefit from being split into phases.
“The first should be a thorough gap analysis and while this should be starting now, firms will need time to review and adjust once final rules are published in July,” he said. “Only then can implementation plans with realistic timelines be created, allowing changes and gaps to be addressed in a meaningful and co-ordinated way.
“We see a strong case for prioritising actions based on customer benefits, with longer timelines for lower impact changes.”
Similarly, Matt Burton, chief risk officer at Quilter said on the whole, the FCA’s consumer duty consultation paper sets out an “excellent initiative” that will help ensure that customers are given all the tools they need to make financial decisions that are crucial to their financial wellbeing.
He explained that while Quilter is supportive of the new measures, the timeline for the implementation is challenging.
Burton said: “To help ensure the smooth adoption of the regulations it may be better to extend the timetable by around eight months or consider a phased implementation. This is arguably the biggest change to regulation since the RDR in 2013 and firms need to have time to digest and implement the changes.
“There is also the potential for a layering of old and new regulations on top of one another which could cause confusion. It would be good to get further clarity about how existing and new regulations interact, particularly in relation to treating customers fairly principles.”
'Immense' challenge to implement
In addition, the Society of Pension Professionals argued that firms need to be given longer to implement the requirements of the consumer duty.
In a letter to the regulator, the SPP said the scale of the challenge for firms in implementing the duty is “immense”.
“By the FCA’s own admission, this represents a fundamental reset of the industry’s approach to its customers,” it said. “The amount of work that will need to be undertaken in terms of reviewing products, setting up systems and governance to ensure compliance with the consumer duty across the product and customer lifecycle is enormous. It cannot realistically be attempted in nine months.”
It explained that firms who already take their responsibilities seriously will likely bear the greatest burden in implementing the consumer duty well, and monitoring and evidencing how they have done so.
“‘Bad actors’ are less likely to collect data and comply with their reporting obligations. There is a risk of regulatory attention being skewed towards minor infractions by compliant firms who actually submit data, as the FCA does not hear about genuinely harmful activity by less scrupulous firms until it is too late.”
“To expect firms to be “fully compliant” seems unreasonable, if not practically impossible, therefore perhaps the FCA should be clearer in its expectations of firms by the implementation date it sets."
An FCA spokesperson said: “The consumer duty is a significant change and we have been consulting on how long firms will need to implement it. We will consider all views received in response to the consultation.”
sonia.rach@ft.com
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