FCA sets out its ongoing consumer duty expectations for UK firms

Preparing annual board reports

In a speech last week, Nisha Arora, the FCA’s director of strategy, said that the regulator expects firms to press forward with the changes they have made to implement the duty. She made it clear that the FCA believes the duty’s benefits – from higher standards and healthier competition, to enhanced consumer trust and inward investment – will only be felt if firms ensure they are “learning and improving continuously”.

In practice, this means firms must dig out the implementation plans that the FCA required firms to create back in October 2022, and review their progress. Recording what a firm has done – and whether it has actually been effective – will be an important part of the first annual board report. This first report, which has to be prepared before 31 July 2024, is a major element of duty compliance.

Firms need to be proactive and put in place plans to prepare the report as early as possible. It needs to be detailed enough to enable the board and the consumer duty champion to understand the firm’s progress on duty implementation. The board must also be able to interrogate the report’s conclusions and its proposed actions effectively.

Supervisors need to prepare to discuss duty implementation and ensure they have easy access to all relevant management information, value assessments and board reports. Now is a good time for firms to review what they have and check that they are comfortable they can demonstrate duty compliance to the FCA. The volume of data and monitoring expected to inform the report means it will be a challenge for firms to complete the analysis and prepare a report that enables this discussion without overloading board members with granular management information.

Implementation deadline for closed products

In her speech, Arora also highlighted the FCA’s attention on firms with ‘closed books’. The regulator expects these firms to be well prepared to meet the 31 July duty implementation deadline next year. Although firms with closed products have been given a year longer to implement the duty than those offering open products, the upcoming deadline remains very challenging for firms.

Legacy products are often on old systems, or sometimes not even on computerised systems at all.  Firms face practical challenges in gathering the information on these products as well as complex analysis around what can and cannot be changed if their reviews conclude that changes are needed to provide good outcomes. As Arora noted, early preparation will be key to meeting the deadline.

Complaints processes

She also set out the FCA’s intention to look at complaints data, focusing in particular on where the Financial Ombudsman Service (FOS) is upholding high numbers of complaints. It expects firms to deal with complaints fairly and to have robust mechanisms to analyse and learn from the root cause of a complaint. It is clear that firms must ensure their complaints processes are meeting the required standard. 

The duty also imposes more obligations on firms to actively support their customers, including through the complaints process. It also includes obligations to take pro-active remedial action where problems are identified – whether as a result of complaints or otherwise. Taking the time now to ensure processes are robust and take account of the duty should help minimise the number of complaints that go to the FOS and the risks of FCA action.