A significant proportion of medium-sized firms may not have looked at Consumer Duty as closely as the FCA is expecting them to ahead of the 31 July deadline, legal firm Konexo has warned.

According to Konexo, larger banks and building societies are more likely to have the necessary capacity to dedicate more resources towards their Consumer Duty implementation plans.

A division of law firm Eversheds Sutherland, Konexo provides a range of alternative legal and compliance services, including managed services, resourcing solutions and consultancy services to in-house legal, compliance and HR functions – covering financial services firms.

Konexo managing director, Simon Collins, spoke to MoneyAge and suggested that how well financial services firms are preparing for Consumer Duty is currently “dependent on the size and scale of the organisation”.

“The smaller the firms, the less work they may have formerly done, and this is where proportionality needs to come to play,” Collins said.

“The challenge that these smaller firms have is that essentially they’re subject to the same regime as the big banks, but they’re not necessarily going to have a non-executive director as a Consumer Duty champion because there may only be two or three people in the firm, so will have to adapt to what’s required for their particular organisation.

“Quite a significant number of smaller firms might be wondering whether Consumer Duty will be any different to previous regulatory regimes, such as the Retail Distribution regime which came in in 2013, or the FCA’s Treating Customers Fairly (TCF) in 2019, as they’ll already feel they look after their customers.

“However, there is a subtle difference between TCF and Consumer Duty, because [the FCA] has brought in a new conduct rule which is a far more directive approach in that you must act to achieve the new good outcomes for retail customers, as opposed to treating customers more fairly, which could potentially be seen as more passive.”

Collins also specified that in the IFA and wealth management advisory world, the message from the regulator on Consumer Duty has been tasking firms with working out what their ongoing service is about, what is being charged for it, and then whether it actually offers value for customers.

“I think there will be quite a significant proportion of firms in the mid-territory in terms of scale, that may not have looked at Consumer Duty as closely as they might have been expected to by the regulator,” he warned.

“You only have to see how much ongoing communication the FCA is giving, such as its roadshows, that it recognises the 31 July is not too far away.”

With its duty, the FCA is aiming to set “higher and clearer standards of consumer protection” across financial services and will require firms to act to “deliver good outcomes” for customers.

The rules it is introducing are coming into force on a phased basis, with 31 July this year for new and existing products or services that are open to sale or renewal, and 31 July 2024 for closed products or services.

Collins suggested that larger banks and building societies with a wider array of products can look to the longer-term and work to the deadline next year, but also said the FCA needs to help smaller firms “build their knowledge” around the duty to ensure they’re prepared for the deadline this year.

“Bigger firms have their own issues and have a far greater number of products to get through to determine whether they’re achieving the good outcomes, and that’s why the FCA has given a further 12-month deadline for back-book products,” Collins added. “There potentially remains some products in this cohort where fee charging, or the level of fees, is not necessarily meeting the required outcomes.

“The FCA can go into the big organisations and have the necessary conversations, but it is just not going to do that with the average sized broker or IFA. The regulator really needs to get at these firms and build their knowledge and expectation through various thematics that they may well end up taking post-31 July.”

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