FCA frogmarching firms on Consumer Duty implementation

Time is tight to implement the Consumer Duty.  Industry is getting jumpy.  Some firms feel like frogs being boiled.

Why all the frog puns?  Well, FCA Consumers and Competition Executive Director Sheldon Mills started it with his 22 February 2023 speech – a textbook study in (over?)extended metaphor.

The highlights: firms should "just eat the frog"; the Consumer Duty isn't really such a big frog after all - perhaps it is "more of a tadpole"; firms shouldn't sidestep swallowing the frog by instead "hopping around the edge of the lilypool"; and once implemented, the Consumer Duty will "spawn new opportunities" as a frog that "may just turn into a prince".

The speech reads as a defiant rejection of calls for forbearance or extension of the implementation deadline - a deadline that Mills says "will not be moved".  This is despite Mills acknowledging that when it comes to the Consumer Duty "we at the FCA have not been great at explaining what is in it for firms and UK Plc".

Why is Mills taking such an assertive stance?  Because, he says:

• According to the evidence that many firms have given to the FCA, the Consumer Duty "is really deliverable".
• The exercise of implementing the Consumer Duty will "refine systems and ideas" and stimulate innovation.
• Hard work at the start "should mean less hard work rectifying avoidable mistakes" later; therefore, the Consumer Duty "should mean lower costs down the line".
• The Consumer Duty will boost competition and inspire customer loyalty, and it will increase trust in financial services.

It must be observed that Mills’ speech doesn’t fully substantiate many of these assertions – especially the assertions about lower costs down the line and about boosting competition.  It’s rather more straightforward to make the argument that Consumer Duty compliance actually means higher costs and is at best neutral from a competition perspective (and could be negative).  Mills’ messaging about lower costs coupled with higher competition strays ever closer to the dangerous territory of price control…

Yet there remains the possibility, in practice, that FCA Supervisors won't seek to boil some frogs immediately after 31 July - at least when it comes to firms that are taking the right steps.  

Here's where Mills' speech sends some important practical messages.  Essentially, he's looking for firms to apply the Pareto Principle - in other words, to take the steps that will have the greatest positive impacts.  And he has some specific suggestions:

• Share information with commercial partners including those in your distribution chains.
• Ask yourself: "is your product or service designed to deliver good outcomes for consumers?"
• Narrow your target markets and ensure that they can understand your communications.
• Remove sludge practices and eradicate punitive exit fees and unfair charges.
• Critically evaluate your systems, governance, training, cultural change efforts and remuneration arrangements.
• Ensure that Boards are engaged with implementation efforts.
• And invest in outside experts (Linklaters is always here to help you) and technology where appropriate.

Do this - and keep records of your efforts! - and it will help you avoid the boiling pot once the implementation deadline passes.