The Financial Conduct Authority (FCA) has revealed that some firms may struggle to apply the Consumer Duty effectively once the rules come into force.

With six months to go before it implements the Consumer Duty comes, the regulator has published a review of how firms are planning to implement the rules.

The Consumer Duty forms part of the FCA’s three-year strategy and aims to help the regulator set and test higher standards, to reduce and prevent serious harm. Parliament has given the FCA a mandate to introduce the Duty through the Financial Services Act 2021. These rules are due come into force on 31 July 2023 for new and existing products or services that are open to sale or renewal, and 31 July 2024 for closed products or services.

Having reviewed a sample of implementation plans and found that many firms show they understand and embrace the shift to delivering good customer outcomes, and have established extensive programmes of work to comply with it properly, the FCA has also found there are still firms further behind in their planning.

FCA executive director of consumers and competition, Sheldon Mills, said: “The Consumer Duty will bring about a step change in the way financial services firms treat their customers and we welcome the work firms are doing to implement it.

“Given the scale of the reform, we recognise that some firms need to make significant changes. For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new Duty.

“Firms will also see the benefits of the Duty, with increased trust in the sector, more flexibility to innovate and in time fewer rule changes.”

Over the remaining six months of the implementation period, the FCA has urged financial services firms to ensure they are making the changes needed so consumers receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need.

The regulator has also stated that firms need to share information and work closely with their commercial partners to make sure they are all delivering good customer outcomes, after the review found that some firms need to accelerate this work to implement the Duty on time.

Commenting, on the regulator’s update, managing director at MorganAsh, Andrew Gething, said: “With six months to go until Consumer Duty comes into force, the FCA’s review highlights the considerable work still required by many firms. The overarching goal of achieving good customer outcomes has created an air of complacency among some firms who believe this is something they already achieve.

“This is reflected in the report which highlights weak implementation plans, a lack of engagement with senior leaders and a shortfall in adopting new technology. Importantly, the FCA rightly identifies a lack of data strategy, especially to monitor and evidence outcomes. This should absolutely be a key focus for firms, and I would argue that successfully managing vulnerability data is key to all other aspects of the regulation.

Chairman at Air Club, Stuart Wilson, added: “Consumer Duty reforms will reshape how advisers in the later life market do business, with our research suggesting that 86% advisers believing they will need to change their operations to comply with the new regulations.
 
“However, we also found that some later life advisers were unprepared for the incoming step change, and as the FCA’s review of progress suggests, this is also true for the broader industry as a whole. The deadline for firms to make the necessary changes is fast approaching, so they must act now to ensure they are providing the best consumer outcomes under the new rules.”

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