A number of firms have seen the consumer duty as too big a task and have adopted an avoidance tactic, according to Sheldon Mills, executive director of competition and consumers at the Financial Conduct Authority.
Speaking at Deloitte's event today (February 22), called a Countdown to Implementation of the Consumer Duty, Mills said the expression ‘just eat the frog’ is about tackling the task first that you most want to avoid.
The concept has been hijacked in modern times by management gurus who use it to describe how individuals should prioritise the most difficult but important tasks, especially those tasks that have the most impact.
It originates from the American writer Mark Twain who said: “Eat a live frog first thing in the morning and nothing worse will happen to you the rest of the day.”
“Many of you have eaten that frog. Or at least devoured a leg,” Mills said.
“We recognise that the consumer duty is significant, and for some requires a significant implementation to get right.”
Mills said while many firms have made excellent progress: “A small number of firms may have seen the task as too big and adopted an avoidance tactic in the hope that it will all go away.
“On behalf of your industry peers who have made the effort, we can confirm that the consumer duty will not go away.
We at the FCA have not been great at explaining what is in it for firms and UK Plc.“Their hard work has not been wasted. And you still have time to deliver. But you must act now. The deadline of July 31 will not be moved. “
The regulator was given the mandate to introduce the duty through Parliament when the Financial Services Act 2021 came into force and is designed to set higher standards to reduce and prevent serious harm.
He argued that although the work on the consumer duty predates the cost-of-living squeeze, the current economic climate highlights the need for those high standards and protections.
“For what this looks like in practice, we can look at the plight of homeowners who are struggling with rising mortgage costs. Or to savers who often wait longer for the corresponding rise in their interest rates,” he said.
“We would remind firms that the duty needs to deliver good outcomes for customers in financial difficulty and that retail customers need to be offered fair value.”
Sidestepping and superficial efforts
Mills said the FCA understands why there has been initial resistance.
“Perhaps one of the reasons for that reluctance is this: We at the FCA have not been great at explaining what is in it for firms and UK Plc,” he said.
“An industry leader recently admitted to me that although on the face of it, the duty was a pain as it required work and resources, her directors were reporting that actually, it was proving to be a useful exercise.
“They were uncovering customers they had not engaged with for some time. They were hammering out plans for new products and services ahead of schedule.”
Some firms appeared to have sidestepped swallowing the frog but were hopping around the edge of the lilypond.The duty forced firms and individuals to think differently, Sheldon explained.
The City watchdog also recently took a "deep dive" into the plans from around 60 of the largest firms who have fixed supervisory teams and who operate mainly in retail financial services markets.
“These are the firms with the greatest potential impact on consumers and markets," he said.
The FCA found many good examples of firms who have taken to the spirit of the consumer duty, as well as some firms who are struggling.
“Some firms appeared to have sidestepped swallowing the frog but were hopping around the edge of the lilypond,” Mills said.
“They were prioritising work that was not the most important.
“Some initial efforts to address the duty appeared superficial while others were over-confident in their existing systems.”
In one example, the FCA said there was no evidence of engagement with the firm’s chair or other non-executive directors, and the board only asked one question before approving the plan.
In another example, board minutes showed that the plan was approved without discussion.
Mills said as the regulator, it does have a duty to scrutinise these plans so it is in firms best interest to double check that these do in fact meet the substantive requirements as set out in the final rules and guidance.
“Some firms had not focused on how they would work with other firms along the manufacturing and distribution chain,” he said.
“For others, governance seemed patchy. We want someone at board or equivalent level to stand up and take ownership for championing the duty.
“We don’t want the champion role to be shared across the entire board as this simply dilutes it.”
Less complaints, more money?
Mills said the introduction of the duty will mean being more upfront about what customers can expect from firms.
“[This] should mean fewer complaints as we get it right from the start and fewer reactive rules down the line,” he said.
“Whisper it, but it should mean lower costs down the line.
“It will boost competition, as firms strive to offer the best in competing for clients. But it should also provide an opportunity to inspire customer loyalty.”
He explained that this will ultimately increase trust in financial services, levelling up standards so that those who are striving hard are not taken down by industry stragglers.
“By now I hope you are coming around to the realisation that the consumer duty is not really such a big frog after all,” he said. “Perhaps it is more of a tadpole.
“But for the benefit of the sceptics, we should spell out practical steps for eating that frog.”
He explained that between now and the next five months, firms should share information with commercial partners and make sure they are on board.
This will include firms' distribution network and wholesalers as well as retailers and any third parties.
Firms should focus on the areas that will have the biggest impact on outcomes for customers.
“Ask yourself the obvious question: is your product or service designed to deliver good outcomes for consumers?,” he said.
“You can make sure you have narrowed your target market and that they can understand your communications.”
He added: “And now that spring is in the air, have you done your spring cleaning of any sludge practices that are lingering? Are there any cobwebs of bad practice that need clearing?
“Any punitive exit fees or unfair charges that need eradicating?”
Mills said the FCA is in the process of sending out industry-specific letters which build on the guidance firms already have, and help firms understand priorities for embedding the duty in their business area.
“I just want to remind firms that we are here to help you make this a success,” he said.
“We recognise this has taken significant effort and we are thankful to you for that.”
sonia.rach@ft.com
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