Dear CEO/Director | Release Date: 3rd February 2023
To read a shorter summary of this Dear CEO/Director letter, click here.
To access the original FCA document, click here.
Long Summary
The Financial Conduct Authority (FCA) has issued a directive aimed at CEOs and Directors of Mainstream Consumer Credit Lenders (MCCL), outlining the implementation of the Consumer Duty. This new framework marks a significant shift in the regulatory expectations, focusing on an outcomes-based approach to consumer protection and raising the standard of care provided to customers.
Implementation Timeline
The timeline for implementing the Consumer Duty is as follows:
- By the end of October 2022, firms should have their boards or management bodies agree on plans for implementing the Duty.
- By the end of April 2023, all necessary reviews to meet the outcome rules should be completed, and information must be shared with distributors.
- The Duty will become effective on 31 July 2023 for both new and existing products or services available for sale or renewal.
- By 31 July 2024, the Duty will apply to closed products or services.
Application of Consumer Duty in the MCCL Portfolio
The Consumer Duty extends to all products and services offered to retail customers, influencing all firms that can impact customer outcomes, not limited to those with direct customer relationships. The regulation aims to ensure that firms act in good faith, prevent foreseeable harm, and support customers in achieving their financial objectives, paying particular attention to the vulnerable.
Key Requirements of the Consumer Duty
- Products and Services: Must be designed to meet the specific needs and objectives of the identified target market.
- Price and Value: Should offer fair value, maintaining a reasonable balance between cost and benefit to the consumer.
- Consumer Understanding: Firms are required to communicate in ways that enhance consumer understanding, enabling informed and timely decisions.
- Consumer Support: Ongoing support must be aligned with consumer needs throughout the product or service lifecycle.
Feedback on Implementation Plans
The FCA’s review of firms’ initial implementation plans revealed a mixed response. While many firms have embraced the new focus on consumer outcomes and established extensive plans, others appear to be lagging, risking non-compliance by the deadlines. Concerns were noted about some firms underestimating the new requirements or lacking detailed plans for necessary changes.
Supervisory Approach and Next Steps
The FCA’s supervisory strategy involves closely monitoring firms’ adherence to the Consumer Duty, focusing on the following:
- Ensuring effective prioritisation of implementation tasks.
- Confirming that substantive requirements are fully integrated into business processes.
- Facilitating cooperation among firms within the distribution chain to ensure collective compliance.
- Firms should expect active engagement from the FCA, including reviews and assessments of their implementation efforts and ongoing compliance. The FCA will use tools such as bilateral engagements, industry events, and targeted reviews to monitor progress and enforce standards.
Key Takeaways and Actions
Review and Revise Implementation Plans: Firms must ensure that their implementation plans are robust, achievable, and compliant with the Duty. This involves a thorough review and possible revision of the plans to address any gaps or underestimations.
Enhance Internal Communication and Training: It is crucial for firms to enhance internal communication and training to ensure that all staff understand the Consumer Duty and its implications.
Engage with the FCA: Firms should maintain open lines of communication with the FCA, ready to discuss their approaches and progress towards implementing the Duty.
Monitor and Adapt Practices: Continuous monitoring of practices and customer outcomes is essential. Firms must be prepared to adapt their strategies and operations in response to feedback and evolving requirements.
This letter serves as a critical reminder for all CEOs and Directors within the MCCL sector to prioritise the integration of the Consumer Duty into their operational and strategic frameworks, aligning with the FCA’s objective of elevating consumer protection standards across the financial services industry.