The FCA’s Consumer Duty: New milestones for firms ahead of implementation

The FCA has opted for a two stage implementation of its new Consumer Duty regime; 31 July 2023 for ’on-sale’ products and services beyond that time, and July 2024 for ‘off-sale’ products and services, i.e. existing contracts with retail customers entered into before 31 July 2023, but which are not marketed or distributed to retail customers after that date.

What are the pre-implementation milestones?

The FCA expects firms to start the process of implementing changes to policies, process, governance and culture well ahead of those dates. The regulator has identified two key milestones that it expects all relevant firms to meet.

Milestone 1 - October 2022 boards to have agreed implementation plans

The first milestone date is October 2022. By the end of October the FCA expects firms’ boards (or equivalent management bodies) to have agreed their implementation plans.

Firms should assume that the FCA will expect firms’ plans to be detailed, transparent and well-reasoned. The Consumer Duty is potentially one of the most significant regulatory initiatives in recent years and will require many, if not all firms, to carry out a root and branch review of their businesses. The plans will need to demonstrate that firms take the new regime seriously.

Preparing for implementation is likely to place heavy demands on senior managers. Plans will need to identify and be suitably open about the challenges firms will face in achieving implementation. They will need to show how they are going to meet them within the demands of the implementation timetable. Credible planning matters as the FCA has already said that firms should work on the assumption that they will be asked to share their implementation plans with FCA supervisors.

The FCA expects boards to be fully engaged in preparations. While a relevant board committee may lead on the detail of a firm’s plan, all directors should be able to show that they are familiar with the Consumer Duty, understand how it will impact on the business of the firm and are comfortable that the firm’s plan is sufficient to meet regulatory requirements. The board will wish to ensure that it is able to exercise sufficient scrutiny of the plan, given its wide ranging impact on the firm as a whole and the intention that it delivers a cultural change in many cases. The extent and nature of the governance around challenge and approval, and what this means for the board’s timetable will be an important point to determine now before time runs out.

The FCA has said that firms should expect to be asked for relevant board papers and board minutes, and to be challenged on their contents. Boards will be required to show that they have ‘scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standards’.

Milestone 2 – April 2023

The FCA has said that manufacturers should aim to complete all the reviews necessary to enable them to meet the four outcomes rules (the products and services outcome, the price and value outcome, the consumer understanding outcome and the consumer support outcome) for their existing open products and services by the end of April 2023. This will enable them to share with their distributors the information they need to enable them to comply with their own obligations under the Consumer Duty in time with the implementation timetable.

Fallout from firms’ planning and review

Firms should not underestimate the burden of the task necessary to complete this work, it is likely to require an end-to-end analysis of a firm’s activities. It is possible that such reviews will uncover potential weaknesses in firms’ existing products and services. Where this happens, firms will need to consider where changes need to be made to their existing open products and services to ensure they comply with the Consumer Duty and implement these remedies by the end of July 2023.

In some cases firms may identify products or services which they wish to discontinue for commercial reasons, or which breach existing rules and principles such as TCF. Where this happens the FCA has reminded firms that they should consider what additional action they should take including whether the relevant notification requirements under SUP 15 are triggered.

How we can help

The Norton Rose Fulbright Financial Services and Risk Advisory teams have created a toolkit to help firms at this critical stage of implementation planning.

Our toolkit contains products designed to help firms navigate the task ahead of them, as they seek to map the application of the new rules and guidance.

Many firms will be at an advanced stage of implementation planning, having stood-up Project teams earlier this year in advance of final rules being published. Others are only now beginning to take these steps. Recognising the different levels of support required, our toolkit has been designed flexibly, building in more tailored support where needed.

For more information, click here.