Dear CEO/Director | Release Date: 6th April 2023
To read a shorter summary of this Dear CEO/Director letter, click here.
To access the original FCA document, click here.
Long Summary
This letter from the Financial Conduct Authority (FCA) addresses CEOs and directors of firms involved in providing Contracts for Difference (CFD), spread bets, or rolling spot foreign exchange to retail consumers. It outlines the expectations and timeline for implementing the Consumer Duty, emphasising the need for a more outcomes-focused approach to consumer protection.
Timeline for Implementing the Consumer Duty
The FCA has provided a specific timeline for firms within the CFD portfolio to prepare for and implement the Consumer Duty:
- End of October 2022: Firms’ boards or management bodies were expected to have agreed on their implementation plans.
- End of April 2023: Manufacturers must have completed necessary reviews to meet outcome rules and shared required information with distributors.
- 31 July 2023: Consumer Duty comes into effect for new and existing products or services open to sale or renewal.
- 31 July 2024: Implementation deadline for closed products or services.
Application of the Consumer Duty to CFD Firms
The Consumer Duty applies to all firms that can determine or influence customer outcomes. This includes firms without direct retail customer relationships but who play a role in the product or service lifecycle that reaches retail customers. The Duty expects firms to act in good faith, avoid causing foreseeable harm, and enable consumers to pursue their financial objectives effectively.
Requirements and Expectations
The FCA’s Finalised Guidance from July provides comprehensive details on the requirements of the Consumer Duty, including:
- Products and Services: Must be designed to meet the needs and objectives of identified target markets.
- Price and Value: Ensure a reasonable relationship between the price paid by consumers and the benefits received.
- Consumer Understanding: Firms must communicate in ways that promote consumer understanding and effective decision-making.
- Consumer Support: Firms need to offer support that meets consumer needs throughout the product or service lifecycle.
Embedding the Consumer Duty
To successfully embed the Consumer Duty, CFD firms must:
- Prioritise Implementation: Focus on reducing the risk of poor consumer outcomes and address areas likely to be most impacted by the Duty’s requirements.
- Engage Substantively with Requirements: Move beyond superficial compliance and ensure that existing processes and policies align with the new standards.
- Collaborate with Other Firms: Enhance cooperation with other firms in the distribution chain to meet the new expectations, especially in sharing information necessary for compliance.
Feedback on Implementation Plans
Feedback from the FCA’s review of firms’ implementation plans indicates that while many have embraced the new Duty, some are lagging. Firms must:
- Address Implementation Challenges: Ensure that prioritisation of tasks is clear and aligns with the Duty’s objectives.
- Prepare for Effective Compliance: Engage deeply with the Duty’s requirements to ensure all aspects of their operations are compliant.
- Enhance Collaboration: Work effectively with other firms to ensure that the entire distribution chain is prepared to meet the Duty’s standards.
Supervisory Approach and Next Steps
The FCA is prioritising the Duty in its regulatory strategy and will actively supervise firms for compliance. It will take action against firms that do not prepare adequately by the implementation deadlines or fail to meet the Duty’s standards post-implementation.
Conclusion
Firms must treat the implementation of the Consumer Duty as a priority, ensuring it is deeply embedded in their culture and operational practices. The FCA expects firms to proactively address any deficiencies and align their strategies to deliver positive outcomes for consumers. This involves a shift towards more rigorous standards of consumer protection and a commitment to fair and transparent treatment of customers across the financial services sector.