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 pivotal directive to leaders within the General Insurance (GI) and Pure Protection (PP) sectors, introducing the Consumer Duty. This new regulatory framework aims to significantly enhance consumer protection by fostering an outcomes-focused approach and setting elevated expectations for customer care. This summary details the FCA’s expectations, the implementation timeline, and the scope of the Duty, providing guidance for firms as they integrate these new standards into their operational strategies.
Implementation Timeline
The FCA has outlined a clear timeline for the integration of the Consumer Duty:
October 2022: Boards are expected to have finalised their strategies for Duty implementation.
April 2023: Manufacturers must complete necessary reviews to ensure compliance with the outcome rules.
31 July 2023: The Duty becomes applicable to all new and existing products or services.
31 July 2024: Extension of the Duty to include closed products or services.
This timeline underscores the urgency of adopting the Consumer Duty, particularly in light of the ongoing cost-of-living crisis, which amplifies the necessity for firms to support consumers in making informed and advantageous financial decisions.
Scope and Application
The Consumer Duty affects all entities offering products and services to retail customers within the GI and PP sectors, including certain commercial customers where relevant sectoral rules apply. This expansive scope ensures comprehensive adherence to the Duty, compelling firms to evaluate and adjust their influence on customer outcomes across all operations.
Core Requirements of the Duty
Acting in Good Faith and Preventing Harm: Firms are mandated to act in good faith, prevent foreseeable harm, and assist consumers in pursuing their financial goals.
Product Design and Value: All offerings should align with the needs and objectives of a defined target market, ensuring products provide substantial value and facilitate consumer understanding.
Ongoing Support and Effective Communication: Continuous support is essential across the product lifecycle, paired with strategic communication that enhances consumer understanding and empowers decision-making.
Feedback from Implementation Plan Reviews
In January 2023, the FCA’s review of implementation plans revealed varied levels of readiness among firms, highlighting some well-prepared entities and others at risk of failing to meet the July 2023 compliance deadline.
Key focus areas include:
Robust Product Governance: Products should consistently reflect consumer interests and deliver substantial value.
Enhanced Communication Strategies: Firms must ensure communications enable consumers to make informed choices, necessitating frequent assessments to maintain effectiveness.
Optimised Claims Processes: The claims experience should validate the product’s value and service quality, requiring firms to prioritise consumer needs and fairness in settlements.
Strategic Expectations for Embedding the Duty
The integration of the Consumer Duty demands significant attention from senior management, particularly in refining product governance frameworks, ensuring communicative effectiveness, and streamlining claims processes. The FCA expects firm leaders to actively engage with and critically assess these domains to guarantee adherence by the upcoming deadline.
FCA’s Supervisory Approach
Moving forward, the FCA describes a rigorous supervisory approach that aligns with its three-year strategy to elevate industry standards comprehensively. This involves precise supervisory actions aimed at examining and reinforcing how firms adapt their operational practices to meet the Duty’s demands.
Conclusion and Additional Resources
Firms operating within the GI and PP sectors are strongly encouraged to deeply integrate the principles of the Consumer Duty into their business models and cultural practices. The FCA continues to provide extensive resources, including detailed guidance and educational webinars, to support firms through this transition. The overarching expectation is clear: firms must not only achieve compliance but also thoroughly embody the Consumer Duty’s principles in every aspect of their operations and corporate ethos.