FCA marks one year of the Consumer Duty with speech by Sheldon Mills

The Financial Conduct Authority (FCA) marked the first year of its Consumer Duty with a speech by Sheldon Mills, summarised by the Finance & Leasing Association (FLA) on 31 July 2024. The FLA said the speech "sets out how the FCA will continue to focus on how firms are embedding the Duty and how any harms will be addressed"¹.

The FLA summary lists examples of changes the FCA attributes to the Duty: increased interest rates on cash savings, improved value of guaranteed asset protection (GAP) insurance, simplified charging structures in financial advice firms, and stopping "double dipping" by platform investment providers, described as making a return on interest retention as well as charging customers for custody of cash¹. The FCA also cited new data and metrics to understand customers, improved support for customer vulnerabilities, and firms changing employee bonus structures to align with customer outcomes¹.

On digital payments, the FCA referred to its Financial Lives Survey, which found that 47% of consumers used a digital wallet for payments in 2022, compared with 17% five years earlier¹. The FLA also reported that the FCA's Digital Sandbox is now a permanent establishment after its pilot, with nearly 60% of participants having launched new products, secured funding or received recognition, and that the FCA has supported over 450 newly authorised firms through Early and High Growth Oversight¹.

The FCA acknowledged that implementing the Duty has not been simple and that firms have raised concerns about the length and complexity of the rules, with a perception that complexity can be a bar on innovation and growth¹. It published a Call for Input to explore how it can simplify the requirements on firms dealing with retail customers, with a deadline of 31 October 2024¹. The FLA said it will respond to that paper¹.

The FLA said the FCA will keep its focus on the price and value outcome, an area firms have found challenging, and that its role is not to set prices but to ensure value overall is provided, with price one element alongside service and understanding¹. The FCA said it will not stand in the way of a well-run business making profit in a well-functioning market where there is effective competition in consumers' interests, provided profits are not at the expense of consumers receiving fair value¹.

Why it matters for households

The Duty is an outcomes-based measure that the FCA says was deliberately made flexible so it can adapt to change¹. For households, the reported effects run across savings, insurance, advice and investments: higher interest rates on cash savings, improved value of GAP insurance, simplified charging structures in financial advice firms and an end to "double dipping" by platform investment providers¹. The FCA's stated position is that it does not set prices but checks that value overall is provided, and that the price a customer pays must be reasonable compared with the overall benefits received¹. The FLA notes the FCA wants smaller firms to feel confident in applying the Duty and delivering good outcomes for their customers¹.

What happens next

The FCA said it will publish a grid of its forward programme of Consumer Duty work in the coming weeks, prioritising action to address harm or potential harm to retail customers, greater understanding of how firms are embedding the Duty, and sharing information on good practice and its expectations¹. It will conduct thematic work across sectors and on specific sectors, products or services, and will keep its focus on the price and value outcome¹. The FLA said the speech and the Call for Input will be discussed in more detail at the next Regulatory Reform Working Group meeting on 4 September 2024¹. The Call for Input deadline is 31 October 2024¹.