The FCA Consumer Duty: a strategic policy to shift industry behaviour

The FCA has now published its final rules and guidance on its new Consumer Duty (PS22/9 and FG22/5) which are designed to fundamentally shift the mindset of firms in how they deliver for consumers. The implementation of the Consumer Duty is a flagship initiative for the FCA, setting out its expectations of the industry over the next years. The FCA is requiring the industry to put the customer at the heart of what they do and to be able to demonstrate how they are achieving good outcomes for customers. The governance and operational changes expected under the rules should not be underestimated by firms.

Given the far-reaching impact, it is pleasing to see that the FCA listened to the industry and implemented a phased implementation. The Consumer Duty will apply to: (1) all new products and services from 31 July 2023; and (2) closed products and services from 31 July 2024.

But what is particularly novel is the FCA has also set out clear milestones for firms to meet during the implementation period. For example:

• Boards (or equivalent management body) should agree implementation plans by end of October 2022 and maintain oversight of their delivery. Firms should expect the FCA to ask for implementation plans, board papers and minutes etc. and be challenged on their contents. The FCA is also expecting Boards to appoint consumer duty champions so that it permeates the firm’s culture.
• Manufacturers should aim to complete all reviews necessary for existing open products by the end of April 2023 so they can share necessary information with distributors for them to meet their obligations; and identify where changes need to be made to their existing open products and services to meet the Duty and implement these remedies by the end of July 2023.
• Firms should consider taking actions that can be completed quickly before the end of the implementation period.
• Remediation of serious issues identified by the firm should be prioritised.

Whilst this is helpful guidance for firms, there will inevitably be pressures on firms to meet these milestones, especially as the FCA will be seeking explanations where progress is too slow.

The FCA does leave open the possibility that firms can take a risk-based approach to implementation where they may be struggling to ensure full compliance. The FCA has said that firms should take a risk-based approach and prioritise implementation work that is likely to have the biggest impact on consumer outcomes, e.g. by reviewing the most complex or risky products and the most significant communications.

As expected, implementation of the Consumer Duty will be at the heart of the FCA’s ongoing authorisation, supervision and enforcement programme. Firms should expect the FCA to be monitoring their implementation progress and be involved where firms are failing to make sufficient progress, and as the firm starts implementing changes to its business such as withdrawing or restricting access to products or services or making changes to existing products.

Look out for future updates from DLA Piper on the implications of the new Consumer Duty.