Implementing the new Consumer Duty: what is considered ‘good practice’?

The UK’s Financial Conduct Authority (FCA) has conducted a review of firms’ progress in implementing the new Consumer Duty for new or existing products by 31 July 2023 (and for closed products with existing customers by 31 July 2024). Firms had until 31 October 2022 for their board to show that it had scrutinised, challenged and approved their implementation plans to ensure they are deliverable and robust. Since then, the FCA has checked on larger firms with dedicated FCA supervision teams and found that some firms are at risk of not being ready in time or not embedding the Duty effectively. Another recommended milestone looms at the end of April and the FCA expects boards to oversee progress to ensure deadlines are met.

The FCA has published detailed findings across six aspects of the implementation process which shows where firms may be falling short, providing examples of ‘good practice’ for each element of the Consumer Duty.

Generally, the FCA wants firms to:

• prioritise efforts that need the most work.
• carefully consider the substantive requirements and identify/make the changes needed.
• work with other firms in their distribution chain.

A summary of the specific findings is set out below.

Governance and oversight

The FCA will hold firms and their senior managers and boards accountable for delivering good outcomes for consumers and driving the changes needed to meet the Duty standard (see Chapter 10 of the FCA’s Finalised Guidance).

Good practice includes:

• robust governance frameworks for their implementation work, with clear executive accountability for delivery and board oversight.
• evidence that plans had been scrutinised and challenged by firms’ boards, executives and their audit and risk functions.
• a Consumer Duty board champion to ensure that the Duty is discussed in a meaningful way.
• arrangements for ongoing scrutiny of their firm’s implementation work by the board, executive and their audit and risk functions.
• evidence of firms involving risk and compliance and internal audit teams in a timely way.
• central coordinating forums to drive consistency in interpreting the Duty across different business functions or workstreams.

Culture and people

Firms must ensure customers’ interests are central to their culture and purpose throughout the organisation. Strategies, leadership, staff and policies (including incentives) must lead to good customer outcomes for customers (see Chapter 10 of the Finalised Guidance).

Good practice includes:

• clear approach to training for the board and all staff to understand their responsibilities under the Duty.
• update internal cultural and training materials to reflect this as appropriate.
• review reward and incentive structures and performance management frameworks at all levels to ensure they reflect the Duty.

Deliverability

The FCA expects firms to analyse all relevant areas of their business to scope the work required.

Good practice includes:

• set out key workstreams, mapping the milestones against the implementation deadline.
• workstreams aimed at the four outcomes, policies, standards, consumer journeys and processes, data/monitoring and training across the business.
• identify early and in detail any resource shortfalls for timely implementation – especially in areas like technology with a plan to address them.
• align with other ongoing change initiatives or strategic programmes.
• set out key delivery risks, proposed mitigation strategies, assigned owners and confirmed plans to track these.
• prioritise/triage implementation work where they have most work to do to meet the Duty standard.
• progress workstreams in parallel, rather than sequentially, partial fixes even if the whole picture is still unclear or fuller strategic solutions are needed later.

Third parties

The Duty applies to all firms with a key role in delivering retail customer outcomes, including those with no direct customer relationship, so firms must work together across distribution chains (see Chapters 2 and 6 of the Finalised Guidance).

Good practice includes:

• understand implementation dependencies on third party providers and allocating time for this work.
• identify key third party relationships and the nature of any dependency.
• engagement with relevant third parties and, where appropriate, exchanging information with third parties in a timely way.

The four outcomes

The FCA expects the Consumer Duty to improve outcomes for consumers in all areas of business between firms and customers. Consumers should get communications they can understand, products and services that meet their needs and offer fair value, and the customer support they need, when they need it (see Chapters 4 to 9 of the Finalised Guidance).

Generally, good practice includes:

• engage with the substantive requirements and considering what these mean for the business and changes required
• define good customer outcomes in the context of their business and considering how to deliver these through improvements to their products and services, communications and the support they provide.
• build on existing frameworks around product governance, product value assessments and the clarity of communications

Products & services  

• identify the number of open and closed products and prioritise for review those with greatest risk of causing consumer harm.
• identify where to build on existing product governance and assessment frameworks to meet the new requirements under the Duty (greater granularity of information to ensure the design and management of its products and services is aligned to the needs, objectives and characteristics of customers in the target market).

Price & value  

• consider what fair value means in the context of their business models, products, services and customers; no hidden or unexpected costs for customers.
• how the current approach needs to change to deliver good outcomes for consumers.
• consider non-price factors and ensure there is a reasonable relationship between costs and benefits or high fees.

Consumer understanding  

• give customers the information they need, at the right time, and presented in a way they can understand to make effective decisions.
• new communication standards, including consideration of reading age, comprehensibility, visual accessibility and layout.
• Communicate in simple language and availability in other languages, clearly set out cancellation rights and how to make a complaint.
• Consider all communications channels, review call centre scripts and the consistency of information provided to customers by third parties/distributors.
• test communications pre-release, post-release and test existing content.
• measure consumer understanding, including the percentage of customer facing content being tested and the percentage of customers who take the expected action after communication.

Consumer support 

• ensure call waiting times are not unreasonably long and the quality of support provided is monitored.
• customer journeys may need to be improved to better support customers in vulnerable circumstances, including mechanisms for customers to notify any additional needs or vulnerability (e.g. bereavement or fraud).
• provide information to customers via their channel of choice.
• review customer journeys.
• metrics to monitor the firm is delivering the support customers need, including call waiting times, resolution times, first contact resolution rates, call transfer accuracy metrics and quality and complaint’s themes.
• task descriptions should indicate how firms have interpreted the Duty’s requirements and considered the challenges of how they will apply them to their businesses, or the consumer outcomes they are aiming to deliver.
• state methodology or approach the firm will use in its reviews or gap analyses of products, services, communications and customer journeys against the Duty outcomes.

Data strategies

The Duty requires firms to assess, test, understand and evidence the outcomes their customers are receiving, so they know they are meeting the requirements set out in the Consumer Duty. The evidence will vary depending on factors like size, client base and the types of products and services offered (see Chapter 11 of the Finalised Guidance).

Good practice includes:

• consider the data needed to measure and monitor the delivery of the outcomes.
• understand the data and metrics available across the businesses and set out plans to bring these together.
• set out longer-term strategic aims to advance the functionality of their systems and data collection, as well as shorter-term solutions to evidence and monitor that Duty requirements are being met and customers are receiving good outcomes.

If you have concerns or questions about Consumer Duty, please contact Simon Deane-Johns.