The Financial Conduct Authority has said some firms’ plans to implement its incoming consumer duty have only considered requirements superficially or have been over-confident that existing policies and processes in place will be adequate.
In a multi-firm review published today (January 25), the regulator surmised that some firms still need to work on embedding the consumer duty requirements into their businesses in order to truly change standards.
It also said some firms need to prioritise their implementation plans more effectively, and that more focus needs to be given to sharing information between firms.
The regulator will soon be sending a survey to a sample of firms to further understand progress on consumer duty implementation and said it will carry out "targeted engagement with smaller firms".
The FCA will also send letters to firms, highlighting its key expectations on implementing the duty and some of the key risks it is concerned about in specific sectors.
Some firms' implementation work appears to be less progressed than others with gap analyses at an earlier stage and project requirements yet to be fully scoped.The FCAThe consumer duty, set to come into force on July 31, 2023, requires firms to match products and services to consumers more effectively, ensure the price and value of these products are fair, to actively avoid customer detriment - ie, "foreseeable harm", and to change their cultures in line with this new regulation.
"We recognise plans were likely to be high level given the early stage at which we reviewed them," the FCA said today.
"Nevertheless, we saw some plans that suggested firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate.
"We urge firms to carefully consider the substantive requirements of the duty, as set out in our final rules and guidance. Firms should ensure that, when they are reviewing their products and services, communications and customer journeys, they identify and make the changes needed to meet the new standards."
In one plan reviewed by the City watchdog, there was no evidence of engagement with the firm's chair or other non-executive directors, and the board had only asked one question before approving the plan.
In another example, board minutes showed that the plan was approved without discussion.
Some plans noted a shortfall in budget or technology resource but without setting out plans for addressing this.The FCAThe review also highlighted the varied interpretations of a consumer duty champion.
In one plan, a champion was proposed without sufficient seniority, while other firms had decided to share the role across their boards.
While the FCA acknowledged it had not been prescriptive on the champion role, firms sharing the role was "not what we intended and our view is this will not be an effective approach given the extent it is likely to dilute the role".
In some plans, there was "limited information" about how the duty will be embedded in firms' cultures.
"Plans recognised the importance of a culture focused on delivering good customer outcomes but provided little explanation of tangible action the firm needs to take to ensure this is the case," the FCA said.
"Some firms' implementation work appears to be less progressed than others with gap analyses at an earlier stage and project requirements yet to be fully scoped."
If firms assume they can 'get by' largely with repackaging or supplementing existing data, then they risk not thinking deeply or afresh.The FCAThe regulator found evidence of "unclear" timelines, "confused" sequencing, a lack of definitions when it came to what actions firms intended to take, and not enough consideration for resource planning.
"Some plans noted a shortfall in budget or technology resource but without setting out plans for addressing this," said the FCA.
'Complacent about past improvements'
The FCA said many plans included high-level actions such as 'review customer-focused policies and procedures to ensure they capture and reference the requirements of the duty' and 'assess whether existing products deliver fair value'.
But it said this type of task-based description "gave no indication" of how firms have interpreted the duty's requirements and considered the challenges of how they will apply them to their businesses.
"Other plans seemed rather complacent about past improvements, initiatives or current frameworks, and their adequacy for meeting the duty or for putting the firm in good position to do so," the FCA said.
On a data front, the regulator also said that not all plans clearly explained what data was required to monitor compliance with the duty.
In some cases, the FCA said firms' data strategies seemed to be "largely based on repackaging existing data", with limited consideration of gaps or the outcomes it is intended to monitor.
"If firms assume they can 'get by' largely with repackaging or supplementing existing data, then they risk not thinking deeply or afresh about the types and granularity of data that they will actually need to monitor and evidence outcomes under the duty effectively."
ruby.hinchliffe@ft.com
