Consumer Duty FCAs critical feedback on firms readiness

The FCA has today (25 January 2023) published feedback on its review of Consumer Duty implementation plans and it doesn't make for comfortable reading.

In its final rules (published in PS22/9 which we summarised here) the FCA set out its expectations including finalised guidance around board approval of firm's implementation plans by the end of October 2022. We know that the FCA has been reviewing some of those implementation plans, with particular focus on larger fixed firms. It has today published its findings from those reviews to help the wider industry meet its implementation expectations.

The FCA looked at:

1. governance and oversight of implementation work;
2. deliverability of firms' plans and their ability to meet the implementation deadline;
3. firms' understanding of and engagement with, third party providers, where firms are dependent on third parties to implement their plans;
4. how plans address the substantive requirements of the Consumer Duty;
5. firms' data strategies to ensure they will be able to identify, monitor, evidence and stand behind the customer outcome expectations; and
6. firms' culture and people strategies to ensure that their business will be focused on delivering good outcomes for consumers and all staff under their responsibilities under the Consumer Duty.

FCA summary findings

The regulator's findings make for uncomfortable reading. In a nutshell the message is that firms' need to pull their [socks up/finger out*] (delete as appropriate).

While some plans showed good understanding by firms of the Consumer Duty focus, others suggested that firms might be further behind in their thinking and planning which brings about risks that the firm will fail to meet the deadline. The FCA identified three areas that firms should focus on leading up to 31 July 2023:

1. effective prioritisation – some plans failed to set out how the firm was prioritising implementation work ahead of other aspects. In essence where are the areas of most risk that the firm has identified and how are these being remedied ahead of the 'nice to haves'?
2. embedding substantive requirements – here was the real stinger, the FCA said that they saw 'some plans that suggested firms' may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate'. The regulator is urging firms to carefully consider the requirements of the Consumer Duty and identify where they need to make changes.
3. working with other firms – the FCA highlighted that some plans gave little focus to where firms may need to work and share information with other firms in the distribution chain. As a reminder there is an interim milestone in April this year around with to be undertaken between manufacturers and distributors.

The FCA went on to give good and bad practice examples around: governance and oversight; culture and people; deliverability; third parties; four outcomes; and data strategies.