The FCA is aiming to raise the bar for consumer protection in the retail financial services market. The New Consumer Duty proposals will require a significant shift in culture and behaviour for many UK firms. Successful implementation will need clarity of scope, and adequate time to implement requirements. The second consultation closed on 15 February 2022. The final rules are expected by the 29 July 2022, and full implementation proposed by 30 April 2023.
In its second consultation on the matter the FCA has developed its proposals further, responding positively to concerns on the cross-cutting rules and the Private Right of Action (PROA), but has it addressed the other questions and challenges identified by the industry? The short answer is not yet.
In its response, the ICAEW Financial Services Faculty has called for greater clarity and further refinement across six key areas of the Consumer Duty in order to support successful implementation.
There has been widespread concern across the financial services sector regarding the proposed nine-month implementation period, and that this short timeframe does not reflect the ‘paradigm shift’ the FCA say the Consumer Duty is.
Whilst in agreement that firms should have been thinking about customer outcomes, ICAEW argues that the FCA should consider the reasonableness of this timescale which is demanding and does not take into account the varied challenges firms face such as, technological change, competing regulatory initiatives, and key supplier risk. An overly aggressive timeline could also inadvertently stifle innovation. The ask from the FCA to start working towards implementation now presupposes the rules are going to remain unchanged. However, adequate time to understand, apply and implement the requirements will be paramount.
Complexity and the wider regulatory change programme
The nature of the Consumer Duty’s relationship to the other significant pieces of current regulatory change, and the cumulative impact of these on the industry, is a missing piece of the puzzle. Numerous new regimes are being consulted upon concurrently (e.g. climate change and diversity and inclusion in financial services). ICAEW highlights the need for the FCA to recognise and articulate how each set of new regulatory proposals adds to its vision, and how they overlap so that firms can more easily join the dots.
Clarity of key concepts and terms
ICAEW emphasises the continued uncertainty surrounding key concepts and terms such as foreseeable harm, reasonableness, sludge practices and the assessment of fair value. They warn that without greater clarity there is the risk of inconsistent implementation across the industry which would not serve to achieve the FCA’s aims or be of benefit to consumers.
ICAEW warns that, in spite of the FCA’s reassurances, there remains a risk of financial
exclusion as the ‘higher bar’ of the proposals coupled with the absence of some detail and clarity in key aspects could lead to a level of market withdrawal.
Supervision and enforcement
There is trepidation concerning the how the proposals will manifest within supervision. How the FCA approaches the supervision of the Consumer Duty will play a key role in determining its success or failure. The ICAEW response maintains the FCA should provide sufficient detail on how compliance will be supervised and their expectations of supervisors without delay given the reported reference to Consumer Duty in supervisory correspondence with firms.
The response also calls for the FCA to introduce a standardised management information suite for the Consumer Duty to avoid the risk of inconsistent reporting across firms, varied interpretations between supervisors, and between supervision and enforcement. This would lead to better customer outcomes, and fairer and more consistent supervision.
Private Right of Action
The FCA has chosen not to introduce a PROA with the Consumer Duty. Whilst this is a welcome step, our view is it should be taken off the table as a regulatory consideration completely due to the potential unintended consequences.