The final deadline for compliance with the UK Financial Conduct Authority’s (FCA) new Consumer Duty is swiftly approaching in July 2023. The regulatory agency has been actively providing guidance, conducting multi-firm reviews, and sharing specific industry insights in the form of Dear CEO Letters to ensure that firms are adequately prepared for the implementation.
My Compliance Office (MCO), which offers affordable, easy-to-use, compliance technology, recently answered some of the questions firms might still have about the regulation.
Questions are set out by the FCA that firms must carefully consider. These questions are aimed at assisting firms in reviewing their Consumer Duty preparedness, identifying areas for improvement, and understanding the regulator’s assessment criteria.
Firms are expected to ensure that their products and services are well-designed and aligned with consumer needs. This involves conducting comprehensive testing and monitoring the effectiveness of communication with consumers. The understanding and responsibilities of individuals within the firm, including control and support functions, must be aligned with delivering the Consumer Duty.
The FCA introduced final rules and guidance around the Consumer Duty in July 2022. Broker Dealers in financial services firms must adhere to the new standards of care. Interim Chair Richard Llyod described this duty as a “game changer” at the FCA’s 2022 Annual Meeting, and emphasised the higher standards it sets for the protection of consumers in the UK.
The three-year strategy of the agency mandates that firms must pay close attention to the pricing, value, and suitability of products and services. They must also establish policies and procedures that enhance consumer understanding and support. FCA Executive Director of Consumers and Competition, Sheldon Mills, noted that the Consumer Duty would result in a major shift, promoting “competition and growth based on high standards.”
Under the new regulations, firms must offer products and services that are fit for purpose. This includes offering fair value and pricing, and an ongoing assessment of the alignment of these products with consumer needs and objectives.
To monitor the suitability of products and services offered to customers, automated compliance software is often used. The new regulation also requires firms to appoint a consumer duty champion at the board level, to assist the Chair and CEO in embedding Consumer Duty principles within the firm’s culture and strategy.
A cultural shift is required for many firms to comply with the Consumer Duty, as the FCA considers it an integral part of its regulatory approach. This shift encompasses aspects of purpose, leadership, people training, and governance within the organisation.
The importance of monitoring outcomes and demonstrating compliance is also emphasised. According to FT Adviser, successful compliance is not only about culture but also about data management.
Finally, the FCA’s multi-firm review highlights the need for firms to move beyond planning and towards actual implementation. This includes focusing on effective prioritisation, embedding requirements, collaborating with other firms, and ensuring robust governance frameworks.
Chris Cattermole, MCO’s UK-based Director of EMEA Sales, stressed the broad impact of the Consumer Duty and the urgent need for Compliance leaders to assess their programs across the organisation, ensuring robust policies and procedures are in place.
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