Governance: a significant shift in both culture and behaviour

The FCA expects that embedding the Consumer Duty will require a significant shift in both culture and behaviour so that firms “consistently focus on customer outcomes, and put consumers in a position where they can make effective decisions.” How to achieve this is up to the firm.

The FCA has amended its guidance to make clear that firms should have a champion at board level (or equivalent) who, along with the Chair and the CEO, will ensure that the Consumer Duty is considered and raised in relevant discussions.

Firms must also prepare a report for its governing body which sets out the results of its monitoring and any actions required as a result of the monitoring. The governing body must, at least annually, review and approve the report, confirm if it is satisfied that the firm is complying with the Consumer Duty, and assess whether the firm’s future business strategy is consistent with its obligations under the Consumer Duty. The FCA expects the governing body to have considered the first report within 12 months of the rules coming into force. The FCA has not prescribed the format of the report and consider that firms are best placed to decide how to communicate the necessary information.

Firms would not be able to use staff incentives, performance management or remuneration structures in a way that conflicts with their obligations under the Consumer Duty.

SM&CR changes to reflect the higher Consumer Duty Standard

The FCA has also amended COCON to reflect the higher standard of the Consumer Duty by adding a new rule requiring all conduct rules staff within firms to ‘act to deliver good outcomes for retail customers’ where their firms’ activities fall within scope of the Consumer Duty. This replaces Individual Conduct Rule 4, which requires conduct rules staff to “pay due regard to the interests of customers and treat them fairly” in situations where the Consumer Duty applies.

The FCA has said that it will also consider evidence of individuals’ understanding of and actions taken to comply with the Duty, when assessing Senior Manager applications for individuals.