New Consumer Duty: from October 2022 implementation planning to going ‘live’ in July 2023

The FCA has set out final rules for its Consumer Duty after more than a year of debate, speculation and industry discussion. First formally proposed in May 2021, and published on 27 July 2022, the Duty supersedes the previous Treating Customers Fairly framework with a more dynamic and proactive approach to regulation described by the FCA as assertive supervision.

The FCA says firms must consider customers’ needs, characteristics and objectives, including characteristics of vulnerability, and how customers behave at every stage of the customer journey. Firms must act to deliver good customer outcomes and understand and evidence whether those outcomes are being met.

The new rules and outcomes focus on four key areas: products and services, price and value, customer understanding, and customer support. They bring customers to the forefront of everything financial services firms do.

So what are the new rules?

The Consumer Duty introduces a new Consumer Principle requiring firms to act to deliver good outcomes for retail customers. Cross-cutting rules provide greater clarity on the FCA’s expectations under the new Principle and help firms interpret the four outcomes.

The Consumer Duty rules relating to the four outcomes represent critical elements of the firm-consumer relationship and are intended to help drive good outcomes for customers. Joe Norburn, CEO at Recordsure and TCC, described the Consumer Duty as the most transformative regulatory shift from the regulator over the past decade, and said its focus on better customer treatment would be welcomed by consumers.

The FCA’s clarity on expectations and firms’ focus on customers’ needs is expected to give firms more flexibility to compete and innovate in consumers’ interests.

FCA introduces challenging deadlines

The Duty places emphasis on accountability and transparency. It is intended to put consumers’ best interests at the heart of decisions in financial services and improve how firms serve consumers. The guidance also redefines firms’ obligations towards customers in recognition of the growing risks posed by an increasingly digitised marketplace.

Fast action is required. Alongside the launch of the new Consumer Duty rules, the FCA announced challenging timescales for the financial industry:

• 31 October 2022: Boards, or an equivalent management body, are required to have an implementation plan.
• 31 July 2023: new Consumer Duty rules come into force for new and existing products or services open to sales or renewals.
• 31 July 2024: rules come into force for closed products and services.

David Boyhan, Technical Director at TCC, said the deadlines put the financial industry under pressure to deliver implementation plans in October and follow through to the Consumer Duty implementation deadline of July 2022. The final rules also set 31 July 2023 as the date when new rules come into force for new and existing products or services open to sales or renewals.

As previously promoted, the FCA is keen for firms to implement the new regulations quickly. The new 31 October 2022 deadline means firms must have implementation plans in place, making a fit-for-purpose compliance framework a top priority for business leaders. David Boyhan also said consultancy specialists such as TCC were prepared to help firms with implementation planning, oversight and delivery.

A quick Consumer Duty recap

The Consumer Duty raises the bar for consumer care beyond Principle 6 and Principle 7 of the FCA handbook. Its overarching Consumer Principle is: a firm must act to deliver good outcomes for retail customers.

The Duty, as stated by the FCA, will require firms to:

• end unfair charges and fees;
• make it as easy to switch or cancel products as it was to take them out in the first place;
• provide helpful and accessible customer support, without making people wait so long for an answer that they give up;
• provide timely and clear information that people can understand about products and services, so consumers can make good financial decisions rather than relying on lengthy terms and conditions few people are inclined to read;
• provide products and services that are right for their customers;
• focus on the real and diverse needs of customers, including those in vulnerable circumstances, at every stage and in each interaction.

The final component of the Duty comprises four outcomes that firms must consistently strive to deliver: consumer understanding, products and services, consumer support, and price and value.

1. Consumer Understanding: understandable, easy-to-follow communications that help customers make informed decisions.
2. Products and Services: user-friendly products and services designed to meet customers’ needs and offer fair value, taking behavioural biases into account.
3. Consumer Support: support that meets customer needs when they need it, across channels and platforms, with vulnerability taken into account.
4. Price and Value: fairly priced products and services that deliver true value to customers.

Now’s the time for action

Whether firms began planning at first notice or waited for further instruction, the final rules mean implementation planning must start. Firms’ first task is to map how the Consumer Duty’s aims and conduct requirements apply to their own products and services.

At the same time, firms need to prepare for the switch to a more outcomes-focused model of supervision. That includes assessing how current outcomes testing and complaints handling can be reworked to fit the Cross-Cutting Rules and Four Outcomes.

The scope of the legislation means the entire product lifecycle is likely to need an honest review. Firms need to ask whether their products are truly designed to meet customers’ needs, whether they offer value for money, how communications help customers, whether websites are user-friendly, whether multiple communication channels are available, and whether more could be done to support consumers in realising their financial goals.

Futureproof Consumer Duty compliance with RegTech

Whatever stage of planning firms are working on, a smooth transition will require considerable time, attention and resource even from well-prepared teams.

Recordsure works with TCC’s subject matter experts, who can provide an impartial and detailed health check of an approach, identifying inefficiencies or blind spots that could prevent effective operation from day one. Those specialists are well versed in implementation planning, delivery and oversight.

RegTech is also expected to play a critical role in supporting Consumer Duty compliance implementation. Recordsure Conversation Intelligence and Document Intelligence monitor and review customer interactions and provide actionable insights, helping firms introduce greater oversight for customer-firm conversations and create audit trails.