FCA to write to firms on Consumer Duty expectations and risks

The Financial Conduct Authority is about to write to firms to set out its key expectations on implementing the Consumer Duty and the risks and consumer harms it is concerned about¹. The Finance & Leasing Association, a trade body, reported on 3 February 2023 that the FCA had announced further support for firms preparing for implementation, including circulating letters setting out expectations under the Duty and arranging a series of regional in-person events for specific groups of small and medium-sized firms².

The letters follow the FCA's verdict, published the previous week, on firms' Consumer Duty implementation plans¹. The Consumer Duty sets standards of consumer protection across financial services¹. The FCA identified that some firms might struggle to embed the Duty effectively across their business¹.

The Money and Mental Health Policy Institute, which published its response on 3 February 2023, said the FCA found a lack of responsibility being taken at a senior level at some firms, including implementation plans approved without board level discussion and boards asking "just one question" before approving a plan¹. The FCA expects firms to have a Consumer Duty champion at board level, with the board or equivalent governing body reviewing and approving plans¹. The institute said the FCA perceived some firms as "complacent" in assuming current internal frameworks for assessing the four outcome areas would meet Duty requirements, and that others lacked clarity on their communications strategy¹. It also said the FCA reported the impression that some firms assume they can "get by" by repackaging existing data to meet Duty requirements¹.

The four outcome areas are Products & Services, Price & Value, Consumer Understanding and Consumer Support¹. The institute said many firms have chosen to focus on consumer outcomes, and that some of its recommendations on consumer understanding and support appear in implementation plans and as examples of good practice in the FCA's review¹. These include developing mechanisms for customers to disclose additional needs or vulnerable circumstances, giving customers information at the right time in a form they can understand, and providing information through the customer's channel of choice¹.

Why it matters for households

The Consumer Duty applies to firms across financial services, so the FCA's expectations reach the banks, lenders, insurers and advisers that households deal with¹. The letters and regional events are aimed at small and medium-sized firms, which the FLA said may include its members². The institute's response focuses on customers in vulnerable circumstances, including people with mental health problems, who it says are at greater risk of poor outcomes¹. It argues that how firms handle disclosure of additional needs, the timing and clarity of information, and the channel customers use to communicate all affect whether people get the outcome they need¹. The FCA's concerns about board oversight, data and communications are about whether firms change practice, rather than about any new charge or product term for customers¹.

What happens next

The FCA is about to write to firms¹. The FLA reported on 3 February 2023 that the FCA had announced letters and a series of regional in-person events for specific groups of small and medium-sized firms². On 16 March 2023 the FLA reported that the FCA had launched a survey sent to a sample of small and medium-sized firms to understand their progress in implementing the Duty². The FLA also reported that the FCA published Finalised Guidance (FG23/2) for firms supporting existing mortgage borrowers affected by the rising cost of living². The sources do not give a date for the letters or the events.