Consumer Duty: metaphor, messages and sabre-rattling

The FCA is waxing lyrical about how central the Consumer Duty is to its work.  Its metaphors have tempered over time (remember the boiling frogs?) but current highlights include describing the Consumer Duty as "a kind of wrapper" as to "how we approach a whole host of consumer issues" (that's Ashley Alder, Chair, at the 2023 APM) and "a golden thread that runs through all your conversations with us" (that's Nisha Arora, Director of Cross Cutting Policy and Strategy, in a speech just delivered today).

In short, according to Arora, the Duty is now "an integral part of our approach and mindset at every stage of the regulatory lifecycle - including authorisations, policy development, supervision and enforcement."  

And the FCA has been busy delivering key messages alongside its metaphors - first by Alder alongside Nikhil Rathi (Chief Executive) and Sheldon Mills (Executive Director, Consumers and Competition) at the APM, and then today in Arora's remarks. Credit is due to all of them for singing so perfectly from the same hymn sheet.  Their remarks together give clear indications about the areas of greatest regulatory risk - which you can use to direct your risk mitigation efforts.

For your attention

• Keep working!  Arora says the Consumer Duty isn't a "once and done" event and that you need to "keep a foot on the gas".  (Another metaphor!)
  • Review your implementation plan.  Yes, for new and existing products.  You heard them right.  Arora says you should “check you’ve made the changes you set out to make. Then ask yourself whether these changes go far enough.”
  • Keep records to show that, rather than treating the Consumer Duty as a compliance exercise, you're embedding it in your culture and how you do business at all seniority levels and across all teams.  Mills says this is about a "change in mindset" from leaders down, and Arora says the Consumer Duty “needs to become part of who you are as a firm”.
• Data and MI.  
  • On collection and analysis of customer outcomes data, engage in continuous improvement (says Mills).  Pay special attention to the following lest you, according to Arora, fall short of the FCA's expectations:
    • Look "in detail at your customers' experience" (Arora) - use data to demonstrate outcomes not just from your products but also "the processes and customer journey" behind them (Mills).
    • Carefully consider what information you need to understand consumer outcomes.  Don't "just repackag[e] existing data".
    • Consider how you will "monitor outcomes for different groups of consumers, including those in vulnerable circumstances".
  • Be ready to respond to FCA requests for your customer outcomes data.  Mills says data is an important part of the FCA's strategy, that "you will see us asking for more data" and "you will see us using that data more in order to identify where we see harms".  
  • Monitor your complaints data for high uphold rates - and any significant changes - and do root cause analysis and remediation. According to Arora, the FCA will focus on firm's complaints data, identifying high FOS uphold rates and then holding firms to account for dealing with complaints fairly and root cause analysis of complaints. Rathi mentioned this workstream too.
• Your Board report.  Get started now (the first one's due in July 2024) and do a thorough job.  It's a real opportunity to mitigate (or exacerbate) regulatory risk.  Arora says you need to be able to provide it to the FCA on request together with its underlying management information.  Which the FCA will use as part of its assessment of a firm's ongoing compliance with the Duty. 
• Cross-sector learnings.
  • Monitor FCA communications specific to your sector.  The FCA is going to look at implementation and embedding of the Duty across each of the sectors within its perimeter, according to Arora.  And Mills says this will include giving "more transparency" in relation to the outcomes they're looking for.  Things might get pretty granular (witness the FCA's cash savings rate work).
  • And keep an eye on learnings from other sectors as they surface in FCA communications.  Says Arora: "there is real scope for learning from different industry areas".  And as FCA work in different sectors proceeds at different paces, opportunities will arise for you to implement cross-sector learnings to get ahead of FCA work in your own sector (unless your sector is first, of course).

The Duty deployed

Arora sees the Duty as already enabling the FCA to intervene quickly and robustly.  In doing so it will prioritise the most serious breaches, addressing them with both interventions and disciplinary sanctions where needed.

And Arora does believe it's making a difference already, saying "I suspect it was not simply coincidence that we saw significant improvements in the savings rates available as we began scrutinising the cash savings market".

Looks like the FCA will keep following that golden thread.  Hold on to your hats.