Dear CEO/Director | Release Date: 3rd March 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 ushering in a significant paradigm shift with the introduction of the Consumer Duty, aimed at enhancing consumer protection through a more outcomes-focused approach. This communication is specifically directed at firms within the Motor Finance Providers portfolio, emphasising the critical need to integrate these new standards effectively.
Implementation Timeline
The FCA has established a timeline for the rollout of the Consumer Duty:
End of October 2022: Firms should finalise their implementation plans.
End of April 2023: Necessary reviews by manufacturers to comply with outcome rules should be completed and shared with distributors.
31 July 2023: The Consumer Duty becomes applicable for all new and existing products and services available for sale or renewal.
31 July 2024: Extension of the Duty to closed products or services.
Scope and Relevance
The Consumer Duty extends to all motor finance products and services offered to retail customers. It applies to firms that influence customer outcomes directly or indirectly, ensuring comprehensive compliance across the board.
Duty Requirements Overview
The FCA’s Finalised Guidance delineates the requirements of the Consumer Duty, aiming to foster beneficial outcomes for retail customers. Firms are expected to:
- Act in good faith and prevent foreseeable harm.
- Consider the diverse needs of their customers, particularly those vulnerable (Chapters 4-5 of the Guidance).
- Ensure products and services are designed to meet the needs of targeted markets (Chapter 6).
- Deliver fair value in pricing relative to the benefits received by consumers (Chapter 7).
- Enhance consumer understanding through supportive communication (Chapter 8).
- Provide consistent consumer support throughout the lifecycle of the product or service (Chapter 9).
Expectations for Integration
The FCA expects motor finance providers to integrate the Consumer Duty deeply into their operational fabric. This includes:
- Strategic Alignment: Aligning business strategies and objectives with the Duty’s requirements to ensure good consumer outcomes.
- Cultural Integration: Embedding a customer-centric culture across all levels of the organisation, driven by the firm’s leadership.
- Operational Compliance: Ensuring that all operational practices, from product design to customer interactions, are compliant with the Duty.
Feedback on Implementation Plans
Recent reviews indicate that while many firms have embraced the new regulatory framework, others lag behind, posing a risk of non-compliance by the July 2023 deadline. The FCA highlights the necessity for:
- Prioritisation: Focusing on areas with the highest impact on consumer outcomes.
- Deep Integration: Ensuring that the Duty’s requirements are deeply embedded in all aspects of business operations.
- Collaborative Efforts: Enhancing cooperation within distribution chains to facilitate comprehensive implementation.
Supervisory Approach and Future Plans
The Consumer Duty is a cornerstone of the FCA’s strategy through 2025, reflecting a commitment to higher standards of consumer protection. The FCA’s supervisory actions will focus on ensuring that firms not only comply with the Duty but also demonstrate a proactive approach to enhancing consumer outcomes. This includes continuous engagement with the industry through updates, events, and collaborations to support firms in meeting the Duty’s requirements.
Conclusion
The integration of the Consumer Duty within the Motor Finance Providers portfolio is critical for ensuring that consumer protection keeps pace with evolving market conditions, especially in light of economic pressures like the cost-of-living crisis. By prioritising this regulatory framework, motor finance providers will play a crucial role in promoting fair, transparent, and beneficial outcomes for all consumers.