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Consumer Duty, one year on

July 2024

What is Consumer Duty?

Regulatory Newbie: It's basically trying to make sure that financial institutions treat customers right. We're talking about clear info, fair prices, and good service.

In the last 10 years there has been an increasing regulatory expectation that customers are treated fairly - previously referred to as ‘TCF’ a term coined under the Financial Conduct Authority (FCA).

There has been numerous updates to regulation to enforce this approach, and more recently, in 2022 the FCA introduced a new ‘Consumer Duty’, setting clearer expectations for firms that deal with consumers and a set of standards or rules that should be complied with across all industries.

These rules came into force in July 2023 and one year on Sheldon Mills, Executive Director of Consumers and Competition, delivered a speech on the impact of the duty to date and what’s next.

As part of this speech, Sheldon was keen to emphasise the FCA’s role in supporting innovation and competitiveness, referring to the FCA’s new secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium to long term.

Key highlights from the speech (apart from all the frog references):

Changes

Firms are acting quicker when the UK base rate increases

The FCA asked firms that have resumed sales of GAP insurance, to materially lower their commission structure

An unnamed large financial advice firm is making significant changes to its business model to simplify and unbundle its charging structure

The FCA wrote to firms about the treatment of retained interest on customers’ cash balances

Impact

The FCA estimates consumers will get around an additional £4bn in interest payments per year, money they can save or reinvest, use to pay down any debt, or that might boost spending in the wider economy.  

The FCA anticipates, based on assumptions about the expected changes, that this will save their customers around £70m.  

Improved outcomes for clients with greater transparency and comparability with other firms and the removal of an early withdrawal charge for certain products.

Firms have now stopped ‘double dipping’ - that’s making a return on interest retention as well as charging customers for custody of cash. Aggregating the impact across 13 of those firms that have stopped this practice, we estimate this will put around £10m annually in fees back in customers’ pockets

What’s next?

In the coming weeks, the FCA will publish a grid of their forward programme of Consumer Duty work. In this programme, they have prioritised initiatives where: 

  1. There is a need to act to address harm, or potential harm, to retail customers.  

  2. The FCA want a greater understanding of how firms are embedding the Duty, the outcomes their customers are getting, and where potential issues are emerging. Where the FCA anticipates needing more data and information from firms, they’ll only ask for what they really need.  

  3. More information sharing on good practice and the FCA’s expectations which they believe will benefit industry and help drive better outcomes. 

Under this work programme, the FCA will do thematic work across sectors, work on specific sectors, products or services, and keep their focus on the price and value outcome. 

Stay compliant with RegComply

  • We can help meet the FCA's expectation for firms to have in place an implementation plan, approved by the board, that the duty will be implemented with meaningful milestones - taking into consideration high risk areas that may need to be implemented first.

  • We can help with supporting your business to implement metrics that help you to understand whether the duty is being implemented, enabling good customer outcomes and/or what should be reported to the board for their oversight.

  • As with most regulatory obligations, governance and oversight must be embedded. We can help with drafting relevant policies and procedures and building the framework to ensure the right information is going to the right people.