As expected, this morning’s announcement sees no change in scope, but a 12-week delay in implementation. Closed book products get another year to sort themselves out/sell out to someone else (delete as appropriate). July 2023 and 2024 will forthwith be known as Consumer Duty implementation months, to be celebrated accordingly.
A short delay for implementation is a sensible move. Our initial impact assessment (more of that in a bit…) concludes that whether you are an adviser, product provider or technology supplier you’ve got a fair bit to be getting on with. The same applies to the regulator, not least since until recently they were still advertising for consumer duty related vacancies. It is going to be a busy 12 months for all concerned.
However, there is a sting in the tail of the implementation timetable. Yes, it is 12 months until implementation, however as 12.11 on the Policy Statement confirms: “By the end of October 2022, firms’ boards should have agreed their implementation plans and be able to evidence they have scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standards. Firms should expect to be asked to share implementation plans, board papers and minutes with supervisors and be challenged on their contents.” So, if you haven’t yet got up and running, boy do you need to. (call us!)
If you are a lang cat client or a premium analyser user you’ll shortly be receiving a concise guide to exactly what Consumer Duty is all about, including our initial impact assessment. But for now, 3 quick points that I think are worth considering.
- Proportionality. You are going hear this word a lot over the coming months. The FCA will look to apply a proportionality assessment to firm’s compliance with Consumer Duty, both in terms of their size (big firms = bigger expectations) but also regarding resource allocation. The resources a firm devotes to bringing in new customers should be broadly mirrored in looking after that customer once they are in, and how easy it is for them to transfer out. There is also the challenge to apply the right level of proportionality when considering and mitigating foreseeable harm – a key component of the product and services outcome, as well as understanding the responsibilities for the various elements of the value chain (advisers, platforms, fund managers etc). TL/DR…everyone is on the hook to some degree, but there is some welcome and important nuance here.
- Board reporting. Prioritising good customer outcomes must be a business objective, getting the same board attention that financial performance, risk and strategy would receive. There is an interesting interaction here with the Senior Managers and Certification Regime, the regulator’s current big stick for keeping individuals in line, and it makes the threat of enforcement for not meeting the Consumer Duty that much more real. The guidance includes several pages setting out how these reports need to be constructed, including a new mention of potential NED roles as a “Duty Champion”.
- Data is the new oil. The FCA have spoken a number of times recently about becoming more assertive and data led, and Consumer Duty represents a huge step in this direction. The creation, collection, and management of data to evidence how firms are meeting their new requirements is an area that I don’t think many adviser firms have started to even consider. Firms will be required to continuously monitor management information to ensure the required outcomes are being delivered. This is not only going to need a step change in data availability and quality, but also (to use PROD speak) a closer relationship between Manufacturers and Distributors. Again, lots of useful info in the guidance as to what the ongoing monitoring and MI needs to cover.
We’ve spent quite a bit of time looking at Consumer Duty over recent months, but I was still surprised at just how much there is to it when I started reviewing the new material yesterday. This is especially the case when you start considering it alongside existing regulation – SMCR, suitability rules etc. The FCA appear to have done a great job with the latest guidance document, with the promise of more implementation support to come. In particular there are lots of examples of what they want firms to do (and importantly, not to do). It is also worth noting their new media strategy of actually speaking to journos and circulating the material under embargo is a hugely positive step. I’m sure the analysis you are reading today (elsewhere, of course) has benefited from this.