We are in the year of the consumer.
The Financial Conduct Authority (FCA) has made it clear; consumer welfare is a top priority.
Earlier this year, the FCA released their 2022 – 2026 strategy, which encompassed critical focus points as well as their initiative to leverage a more outcomes-based approach to compliance. Within the strategy, the FCA stated, “we aim to use our regulation to address the imbalance in knowledge about financial services between firms and consumers.”
And this new FCA Consumer Duty does just that.
What is FCA Consumer Duty?
“Under the Duty, firms will need to assess and evidence the extent to which and how they are acting to deliver good outcomes. Combined with our more data‑led approach, this should enable us to more quickly identify practices that negatively affect those outcomes and to intervene before practices become widespread.”
To help clarify the impact this new duty could have on your firm, we’ve broken down the key points addressed within the FCA’s publication.
Who does this impact?
The Duty, as it is referred to in the FCA’s publication, will impact:
- Regulated firms, including those in the e‑money and payments sector.
- Consumer organisations and individual consumers.
- Industry groups/trade bodies.
- Policy makers and regulatory bodies.
- Industry experts and commentators.
- Academics and think tanks.
What is the impact on firms?
The crux of the revised Consumer Duty is, as the name implies, to protect the consumer. By implementing the Duty, the FCA hopes to create a higher (and better) standard for customer protection, requiring firms to provide consumers with the knowledge and insight required to make the best-informed decision possible. While many firms have already placed emphasis on consumer education, so called “bad actors” in the space rely on a consumer’s lack of awareness to dupe into decisions which weren’t appropriate for their needs. In this way, the FCA also seeks to even the playing field for competition amongst firms.
Firms will be required to prove that they have acted in the consumer’s best interest. Specifically, “The cross‑cutting rules require firms to:
- Act in good faith.
- Avoid causing foreseeable harm.
- Enable and support retail customers to pursue their financial objectives.”
What is the effective date of the new FCA Consumer Duty?
Given the complexity of implementing the new Consumer Duty the FCA has introduced a phased approach to implementation:
- July 31, 2023: By this date, “Firms will need to apply the Duty to new and existing products and services that are open to sale (or renewal).”
- July 31, 2024: By this date, firms will need to “apply the Duty to products and services held in closed books.”
How will the FCA regulate the new Consumer Duty?
The FCA stated they, “will measure the success of our proposals by monitoring key outcomes for consumers. For example, one of the ways we can monitor whether consumers are getting products and services which meet their needs and provide fair value is through monitoring Financial Ombudsman Service final decisions on complaints about fees or charges or inappropriate product or service sales.
We will also monitor what products and services consumers use, and measure what consumers are seeing and feeling and their levels of trust and confidence, including through our Financial Lives Survey. We will evaluate the success of our proposals by using data from a variety of sources including supervision and authorisation activities, firm management information (MI), and complaints data.”
How the ComplySci® Platform can help you comply with the FCA’s new Consumer Duty
As with their overarching strategy, the FCA’s new Consumer Duty utilizes an outcomes-based approach and requires firms to proactively provide consumers with the required information to make the best decision for their needs. Implementing consumer duty and complying with the new Duty set forth by the FCA will entail thoroughly evidencing the processes which have been put in place to uphold consumer protection and best interest.
While firms may rely on manual processes to document the appropriate efforts, integrating a compliance technology which supports such endeavors will not only streamline workflows, but ensures every critical piece of evidence is captured and available should the FCA examine your firm for compliance, preventing enforcement actions.
The ComplySci Platform provides the documentation and evidencing of all critical compliance activities, aggregating the necessary certifications and documents to prove your compliance with the FCA Consumer Duty. Specifically, firms can:
- Extract reports and analysis of all compliance activities.
- Document a full audit trail of compliance communications.
- Provide evidence to support your processes and procedures.
From a big picture perspective, ComplySci’s Compliance Program Management solution addresses the full scope of compliance activities and tasks related to Consumer Duty, enabling firms to move away from specific tasks and projects to a more business as usual (BAU) manner of working.
With just over six months until the deadline for the first effective date, firms must prioritize creating the policies and procedures which will comply with the FCA’s new Consumer Duty. The second item on your to-do list? Implementing a compliance technology which will document and evidence your processes, proving without a shadow of a doubt that your firm and its employees are protecting the best interests of clients and complying with all FCA regulation.
Ready to see how ComplySci can help your firm achieve compliance? Schedule a demo today!