Since the announcement of the final rules in July 2022, the Financial Conduct Authority has been making no secret of the existence of the new consumer duty and how it is expected to drive an improvement in standards in the regulated sector.
The consumer duty is a flagship policy for the FCA, and so — quite simply — it is a policy that it needs to see succeed. Given this, it is expected that the regulator will be proactively monitoring compliance and taking steps to enforce this in situations where a company is found to be lacking.
The FCA has, over the past year, published a large amount of material and papers that are intended to allow companies to understand the new rules and what steps should have been taken to prepare for the duty. It is likely, therefore, that the watchdog will take a relatively dim view of any significant instances of non-compliance.
Furthermore, given the “open” nature of the FCA’s work to date on the consumer duty and the amount of material publicised, companies should be mindful that any significant enforcement action that is taken due to non-compliance may also be openly publicised, and find themselves being used by the regulator as an example of a firm that “got it wrong”, so as to deter other businesses from doing the same.
In the first instance, it is likely that it will be the larger companies and businesses that are the initial focus of the FCA’s attention. Over time, however, smaller firms will also start to face questions about how they have implemented the duty and how compliance is being monitored.
These queries may come about during the course of submitting annual returns, as well as during the course of any business-specific engagement with the regulator that may come about, such as during the course of a change in control notification, or an application to vary permissions.
Implementation plans
All companies should, in future dealings with the FCA, expect to receive questions about the consumer duty, be able to show clear understanding of it, and be able to provide data and information to demonstrate how the rules have been embedded within the business and how these are operating in practice.
The starting point for most companies in terms of the duty will be their implementation plans. Under the regulator’s original pre-implementation timeframe, it expected companies to have initial plans ready by October 2022.
Following this, the watchdog carried out a select review of companies’ plans in the run-up to implementation, and published reports setting out its initial findings about firms’ plans and whether these were sufficiently enabling companies to embed the duty with their businesses.
The FCA’s multi-firm review of January 2023 gave particular insight into companies’ plans, and it highlighted three key areas of focus for businesses to address in the run-up to implementation. These areas were:
