The Financial Conduct Authority (FCA) Business Plan published earlier this month confirms its focus on the four big ticket consumer priorities from last year’s Business Plan. However, they have now added a fifth and this is a clear signal of intent from the FCA in relation to its ambitions for its Consumer Duty initiative.
In practical terms, what does adding Consumer Duty as a fifth priority actually achieve?
Although the Consumer Duty is only in consultation, adding it into the Business Plan priorities provides certainty that Consumer Duty will be going ahead. The FCA is simply consulting on the what, how and when.
Based upon industry insights, there will be a sizeable pushback on the Private Right of Action, which may mean that the FCA row back on that component – but I’d be amazed if any other of the main elements of the Consumer Duty did not progress to the next paper.
This means that there are a number of ‘no regrets’ actions that you can take now to assess your starting positions in readiness for the second more impactful and detailed paper arriving in December. These could include:
- assessing how appropriate your firm’s current level and focus on management information is relating to evidencing good customer outcomes or
- the degree to which customer understanding is already factoring into your financial promotions.
Four birds – one stone…
There are a significant number of overlaps between the FCA’s existing priorities and the intended objectives for the Consumer Duty. The existing four reference “fair value”, “consumers making informed decisions”, “consumers being treated fairly” and making “products safe and accessible”.
However, some of these existing four are sector-specific – whereas the Consumer Duty is overarching and all-encompassing. In fact, the FCA could have positioned it as such given that if Consumer Duty is successfully implemented, the other four are highly likely to as well given their interconnectedness. In reality, Consumer Duty becomes the umbrella underneath which the other four big-ticket priorities are addressed.
Birds eye view…
The FCA has highlighted that the Consumer Duty is designed to “raise the bar” across all firms to improve outcomes that consumers are experiencing. However, taking a broader view quickly identifies that not all sectors have the same starting point; some will have higher to travel to reach the bar. Some sectors have experienced specific rules on some of the topics in the proposed duty (e.g. product governance) which other less mature (or more recently regulated) have not been exposed to. Therefore, the intention of adding Consumer Duty as a fifth priority creates a consistent and unified approach designed to lift all firms up to a common standard – regardless of sector.
I am sure there is still a debate to be had about whether the FCA needs to formally recognise the materiality of the change for some sectors compared to others in terms of how (and when) it implements the changes - but that’s one for the next Consultation Paper.
For more information on Consumer Duty, along with practical insights on the implications for firms, visit our Consumer Duty webpage and download the KPMG Report. Also, take a look at our analysis and insights arising from the FCA’s 2021/2022 Business Plan here.