Critical next steps in preparing for consumer duty

The FCA has been clear that distributors such as retail investment advice firms have a critical role to play in getting products to market and that they have an obligation to ensure that their, or other charges across the chain, do not cumulatively result in the product ceasing to provide fair value.

This is of particular importance in longer or more complex chains, where multiple charges may be added. For retail investment advice firms, providing fair value is therefore a holistic rather than isolated assessment and these firms will be dependent on information provided to them by manufacturers.

All distributors of investment products should engage as early as possible with manufacturers and others in the chain. Distributors will wish to consider the extent of contractual protections that can be obtained from others in the chain in this regard.

There is some comfort for distributors, however, in that manufacturers have an earlier obligation to review their arrangements so as to be in a position to share relevant information with distributors by April 2023, to provide enough time for distributors to include this within their own assessments and processes, and comply with the rules applicable to them by July next year.

Board, governance and culture

Firstly, the FCA has made clear that it expects firms to have a champion at board level (ideally a non-executive director) who, along with the chair and chief executive, ensures that the consumer duty is being discussed regularly and raised in all relevant discussions.

This is important not only to ensure momentum against the key interim milestones in the run up to implementation are met, but also so that firms can demonstrate to the FCA how they are overseeing implementation in practice.

At an individual level, senior managers will be accountable for delivering good consumer outcomes.

More broadly, the FCA has recognised that the benefits of the consumer duty will only be delivered by firms that make lasting changes to their culture, behaviours and processes and this needs to be driven from the top with strong senior championing and oversight from boards.

In line with this same governance theme, boards will be required to consider and sign-off a report annually on whether the firm has complied with the consumer duty.

It is likely the FCA will ask firms to provide copies of this report as part of its ongoing supervisory work, along with other management information and reporting that demonstrates the outcomes are being delivered to retail customers.