UK financial firms must stay ahead of FCA consumer duty priorities

Daniela Ivanova and Jonathan Cavill were commenting after the FCA published an consumer duty ‘focus areas’ overview page on its website. The overview sets out areas of focus for firms in the financial services sector for the remainder of the 2024-25 financial year. This initiative is part of the FCA’s supervisory approach to implementing the new consumer duty. 

“From the outset, the FCA positioned consumer duty implementation as an ‘iterative’ process. Implementation is not a ‘once and done’ process and requires ongoing compliance. Firms should also make sure they remain a step ahead of the FCA as it singles out sector after sector for more targeted interventions,” said Ivanova, financial services specialist at Pinsent Masons.

The consumer duty sets a high standard of care for firms, requiring them to act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives. This new duty is designed to foster a culture where consumer interests are at the forefront of business practices. The FCA’s overview shows how the FCA has gone about ensuring that firms align with these expectations.

The FCA is producing this list of priorities in response to industry feedback that it would be helpful to show consumer duty areas of focus in one place. Further good and poor practice publications are in the pipeline, relevant for all firms across the financial services sector.

Amongst the priorities, the FCA emphasises the importance of customer-centric culture and robust governance structures. Firms are expected to embed the consumer duty into their corporate culture, ensuring that all levels of the organisation are committed to delivering good customer outcomes. This includes having effective oversight mechanisms and using data to monitor and improve customer experiences. The FCA’s good and poor practice reviews set out what firms need to do to comply with the consumer duty. By early 2025, firms will be provided with more clarity on what is good and poor practice for how boards supervise their compliance with the consumer duty.

The regulator also highlights product service and design as a priority, with firms obliged to ensure that their products and services are designed to meet the needs of their target customers. This involves rigorous testing and validation processes to confirm that products deliver the intended outcomes. The FCA encourages firms to engage with customers during the design phase to gather feedback and make necessary adjustments. Firms can expect more clarity on this process in the regulator’s upcoming review of treatment of customers in vulnerable circumstances.

Effective communication and support are also critical under the consumer duty. Firms should provide clear, timely, and relevant information to help customers make informed decisions. Additionally, customer support services should be accessible and responsive. Continuous monitoring and evaluation are also essential to ensure compliance with the consumer duty. Firms are required to use data and analytics to track customer outcomes and identify areas for improvement. Also, by early 2025, the FCA has promised to publish its findings on how firms support their customers across the customer journey and how they are using communications to support informed consumer decision-making.

The FCA made repeated reference to its call for input (27-page / 438KB PDF) following the introduction of the consumer duty, in which it proposes to scrap detailed retail conduct rules and instead rely on the duty.

Ivanova said: “The call for input asks firms to identify rules that do not work for them. Firms have the opportunity to remove rules that are not fit for purpose but should be mindful that, once those rules are gone, they will have to use their own judgement to tell a good outcome from a poor outcome. If not managed carefully, simplification of the handbook could result in scrapping detailed retail conduct rules which firms regard as safe harbour.”

Supervisory engagement, multi-firm reviews and market studies are expected as the FCA plans to work to tackle existing areas of concern across the rest of this financial year and into the next. The sector-specific reviews translate the general concepts of the consumer duty into commercial reality for these sectors. Retail banking, consumer finance, payments, investments, life insurance and pure protection insurance are on the FCA’s radar.

Cavill said: “There is a clear pattern of how the FCA uses the consumer duty to intervene in markets: first, a multi-firm review or market study using information powers; followed by targeted supervisory engagement and a lot of general publicity of these initiatives. There is a clear choice to lean on supervision rather than enforcement, avoiding the various checks and balances, including confidentiality, that apply to the use of enforcement powers”.

“However, FCA information requests can cover an extended timeline pre-dating the consumer duty. If firms are not able to provide detailed information on short notice, the FCA does not hesitate to use its statutory power to require a skilled person to report, which although a supervision tool, can quickly change the engagement,” he added.