Dear CEO/Director | Release Date: 21st 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) is focusing on a substantial shift in expectations towards an outcomes-focused approach for consumer protection, significantly heightening the standard of care that payment firms must provide. This change is encapsulated in the newly introduced Consumer Duty, targeting firms under the Payment Services Regulations 2017 (PSRs) and the Electronic Money Regulations 2011 (EMRs).
Implementation Urgency
Recognising the complexity and timing of these changes, especially during economically challenging times, the FCA insists that the integration of the Consumer Duty will facilitate trust and growth in the sector, ensuring firms deliver consistent positive outcomes for consumers.
Implementation Timeline
End of October 2022: Firms are expected to have their implementation plans ratified by their boards.
End of April 2023: Necessary reviews by manufacturers should be completed to comply with the outcome rules.
31 July 2023: The Duty becomes applicable to all new and ongoing products or services available for sale or renewal.
31 July 2024: The Duty extends to products or services that are closed.
Applicability to Payment Firms
The Duty targets a broad spectrum of financial activities, covering entities like Payment Institutions (PIs), Electronic Money Institutions (EMIs), and Registered Account Information Service Providers (RAISPs). It applies not only to direct consumer relationships but also to entities that significantly influence consumer outcomes, including micro-enterprises and small charities.
Requirements Under the Duty
Outlined in the July 2022 Finalised Guidance, the Consumer Duty mandates:
- Acting in good faith towards customers, avoiding foreseeable harm, and aiding them in achieving their financial goals.
- Specific design of products and services to meet the needs, characteristics, and objectives of a targeted consumer base (Chapter 6).
- Ensuring products and services are of fair value, balancing cost against consumer benefit (Chapter 7).
- Enhancing consumer understanding through clear communication that enables informed decisions (Chapter 8).
- Supporting consumer needs throughout the lifecycle of the product or service (Chapter 9).
Expectations for Firm Integration
Firms are expected to weave the Consumer Duty deeply into their corporate culture and business operations:
Leadership Engagement: Firm leaders must prioritise and integrate consumer interests into the firm’s core mission and operations.
Strategic Alignment: The Duty should be central to the firm’s strategic objectives, ensuring it informs all business decisions.
Feedback from Implementation Plan Reviews
As of January 25, the FCA provided feedback on the firms’ implementation plans, noting both commendable practices and areas needing improvement. While many firms have adapted well, some lag behind, risking inadequate preparation by the set deadlines.
Focused Areas for Compliance
Effective Prioritisation: Firms need to prioritise actions based on their potential impact on consumer outcomes.
Deep Integration: Beyond superficial compliance, firms should thoroughly integrate the Duty’s requirements.
Collaborative Compliance: Firms must work together within the distribution chain to ensure cohesive adherence to the Duty.
Supervisory Approach and Forward Strategy
The Consumer Duty forms a cornerstone of the FCA’s three-year strategy, influencing supervision and regulatory focus until 2025. It necessitates a proactive supervisory approach, emphasising ongoing interactions with firms to ensure compliance and address emerging market challenges.
Conclusion
The implementation of the Consumer Duty within payment firms is crucial for enhancing consumer protections and ensuring the sector’s robust growth. By embedding these standards deeply into their operational and strategic frameworks, payment firms can significantly contribute to a more trustworthy and consumer-oriented financial market.