The Consumer Duty was introduced on 31 July 2023 and it’s fair to say it has shaken up the financial services sector and driven improvements in consumer protection - but is it having the full effect intended?
The FCA introduced the rules, after much debate, to “set a higher standard of consumer protection in financial services.”
One of the key planks was to ensure fairness in consumer outcomes at, “all stages of the customer journey.”
To assess the continuing impact of the Consumer Duty, the FCA reviews reports from company boards about how they have instilled and monitored compliance with the Consumer Duty rules. It also looks at what they have done to make any needed improvements that might have been flagged up by the data they have collected.
The regulator's latest ‘school report’ shows a mixed picture which could best be summed up, in school report language, as “some progress made but could do better."
It’s fair to say there has been improvement in many areas and consumers are now probably protected better than they were before the Duty was introduced. Silver star for this.
According to a report by FCA head of consumer policy Jonathan Pearson, many firms, including small ones, have improved but more work is needed in several areas. A bronze star here.
The FCA says positive developments it has seen in board reports are: stronger governance and clearer board oversight with firms increasingly setting out comprehensive action plans and compiling broader and more insightful data, including trend analysis, root cause assessments and comparisons across customer groups.
There is also evidence of firms improving how they identify and monitor outcomes for vulnerable customers.
Areas where firms need to pull their socks up include: too much variability in the quality and depth of analysis; firms needing to clearly link data to customer outcomes with clear evidence required from the data of good outcomes being provided; firms needing to need to draw conclusions, identify 'emerging risks' and be prepared to challenge their own practices where the data suggests customers may not be getting good outcomes.
Monitoring of outcomes delivered by third parties in distribution chains was often viewed as, “weak, especially where firms rely on intermediaries or outsourcing partners,” Mr Pearson reported.
He added that some firms have struggled to identify a proportionate approach and the FCA plans to consult on changes to rules and guidance relating to distribution chains this year, as well as publish best practice examples of how firms are monitoring and achieving good outcomes under the Duty.
The message from all this is that the Consumer Duty is not a tablet set in stone, but a fluid and evolving set of rules designed to improve consumer protection over the long term. It's not a 'job done, tick box exercise.'
It’s easy to be critical here but I think good progress has been made overall and the feedback will help firms do better. The FCA will clearly add to the rules in future and keep a close eye on their implementation.
We’ve so far seen little evidence the FCA is keen to punish firms for minor Consumer Duty failures and it will want to keep things that way in this new era of ‘lighter’ regulation.
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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and mainstream news. This topical comment on the Financial Planning news appears most weeks, usually on Fridays but occasionally other days. Email:
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