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 Consumer Duty represents a fundamental shift in our expectations, introducing a more outcomes-focused approach to consumer protection and raising the standards of care that firms provide. This guidance is directed at firms within the Consumer Investments sector to aid in the effective implementation and integration of the Duty.
Implementation Timeline
- By End of October 2022: Boards or management bodies should finalise their Duty implementation plans.
- By End of April 2023: Manufacturers must complete all necessary reviews to comply with outcome rules.
- 31 July 2023: Duty enforcement begins for new and existing products or services.
- 31 July 2024: Duty applies to closed products or services.
Application of the Duty
The Duty impacts all firms in the Consumer Investments sector that can influence customer outcomes, not just those with direct customer relationships. This broad application is essential, especially as consumers face increased financial pressures today, highlighting the need for robust standards and protections to enable informed, effective consumer decisions.
Duty Requirements
Outlined in our July 2022 Finalised Guidance, the Duty compels firms to:
- Act in good faith, prevent foreseeable harm, and support consumers in achieving their financial goals.
- Design products and services that meet the specific needs and objectives of their target market.
- Ensure that pricing and value of services are justifiable and beneficial to consumers.
- Enhance consumer understanding through clear communication to enable well-informed decisions.
- Provide consistent support throughout the product or service lifecycle.
Expectations for Integration
Leaders are expected to deeply integrate consumer interests into their business frameworks. This integration is critical, as indicated by our recent review of implementation plans which shows that while many firms are aligning with consumer outcomes, some are not progressing sufficiently, risking non-compliance by the set deadlines.
Focus Areas for Immediate Action
- Mainstream Investments: Services must meet consumer needs and offer fair value, especially on platforms, in wealth management, and financial advisory services, where attention is needed on value assessments and improving investment transfer processes.
- High-risk Investments: Protect consumers from unsuitable high-risk investments with precise product design and targeted distribution strategies.
- Scams and Fraud: Implement stronger measures to prevent consumer harm from scams and fraud.
- Consumer Redress: Act proactively to address any harm caused to consumers, ensuring timely and fair redress.
Feedback on Implementation Plans
Feedback from January highlights uneven progress across the sector. Immediate actions include:
- Effective Prioritisation: Identify and focus on critical aspects that significantly impact consumer outcomes.
- Understanding Substantive Requirements: Fully integrate and comprehend the Duty’s requirements to go beyond superficial compliance.
- Collaborative Efforts: Improve coordination with other firms in the distribution chain to ensure collective adherence to the Duty.
Supervisory Approach and Next Steps
The Consumer Duty is central to our strategy, influencing our supervisory practices and focus areas. We are committed to supporting firms through this transition, providing ongoing guidance and resources.
Conclusion
Firms must proactively align their operations with the Consumer Duty to place consumer interests at the forefront of their business practices. This commitment will not only meet regulatory expectations but also enhance trust and consumer orientation in the market.