It's important to note that the effects of the FCA's New Consumer Duty will be wide-reaching. This duty will affect regulatory areas such as supervision, enforcement, and authorisation.
While the FCA's rules and guidance on this duty aim to put the duty into practice, the pace of implementation will still be challenging for most firms. This is because there are no specific rules for the implementation process, such as what you could include in your implementation plan.
So, drafting the plan can be daunting, especially if you are responsible for manufacturing or distributing many open products.
Five steps to a Consumer Duty implementation plan
- Analyse current customer documentation & processes
- Assess which of the four outcomes is most relevant
- Develop a staff training programme
- Monitor progress in delivering good customer outcomes
- Ensure you know the important dates & deadlines
1. Analyse current documentation & processes
Review current customer documents and processes to decide whether your company could require further IT resources or an enhanced MI, reporting, and testing capability. It could also require more staff training on revised processes to ensure that you strengthen customer support.
Alternatively, your gap analysis for the FCA's Consumer Duty could reveal changes you need to make to existing products and service governance processes as a manufacturer and/or distributor per the outcome of the product and services.
Businesses could also benefit from focus groups to test consumer understanding and a central communication hub for all internal stakeholders to share customer-related information on products and services.
Then you could also use this initial review to construct an implementation plan. Your plan could detail how you feed this information to your board and how you can begin the process of monitoring all customer outcomes regularly.
2. Assess which of the four outcomes is relevant
The FCA's Consumer Duty rules and guidance does not aim for firms to operate a one-size-fits-all approach as it understands that each firm's customers are different. So, you need to decide whether to focus on all four outcomes or those relevant to your business.
For instance, if you are a regulated mortgage servicer and have no role in manufacturing or distributing products or services, the product and service outcome might not have as much relevance to you. On the other hand, the outcomes related to consumer understanding and consumer support will.
When defining a good outcome, start with any good feedback or experiences your customers have had. Once you know what works, you can create an implementation plan to build on this and target any current problems in practice.
3. Develop a staff training programme
This new duty will require a shift in culture and behaviour at several firms as the FCA does not want the delivery of good customer outcomes to be hindered by more of a focus on profits and sales.
For example, the FCA wants more businesses to take cognitive diversity into account when hiring staff so that they can have the ability to understand a wider variety of customers and make better decisions about them.
In addition, the FCA's Consumer Duty also includes the new individual conduct rule 6, which needs all conduct rules staff to 'act to deliver good outcomes for retail customers in terms of in-scope activities. Additionally, the more senior the person is, the more relevant this rule is to them, meaning that the FCA will expect more from them in delivering customer outcomes.
Training can also be a way to engage internal stakeholders and make the whole company aware of what they need to do to ensure good customer outcomes. A firm could also make training more practical by using examples of good and poor practice from the FCA's finalised, non-handbook guidance to craft case studies.
Staff can then be encouraged to discuss how they would solve a customer's problem in a particular scenario. If this solution could lead to poor practice, the team responsible for training can educate them on the right approach at this point.
Your implementation plan can also include frequent refreshers on the FCA's Consumer Duty to ensure that your staff receives regular training on good customer outcomes.
4. Monitor delivering good customer outcomes
The FCA will want to see evidence that a firm is continually monitoring and reviewing the implementation of the Consumer Duty. To do this, businesses need to regularly review and keep track of their customer experiences with their product or service to assess whether this is in line with the FCA's Consumer Duty.
Next, investigate any issues preventing customers from getting good customer outcomes. Finally, the firm must work on documenting solutions within its implementation plan after an investigation. These solutions could change policies or practices and prevent bad practices from happening again.
The FCA's Consumer Duty guidance also details what type of information companies can collect to monitor adherence to the outcomes within paragraph 11.33. This includes collecting data on complaints, customer feedback, and testing customer experiences.
Your firm's board or governing body will also benefit from regular monitoring. In line with the duty of responsibility and the conduct rules under the Senior Managers and Certification Regime (SMCR), a firm's board or governing body and senior managers will also be held accountable for delivering good customer outcomes in ensuring adherence to the FCA's Consumer Duty.
To meet their responsibilities, the board needs to be provided with at least an annual report which assesses whether the business's products and services are delivering good customer outcomes. If not, this report needs to include proposed solutions to problems.
This report will also help the board assess whether a company complies with Principle 12 and PRIN 2A. Next, it is required to ensure that a firm's future business goals are consistent with the requirements under Principle 12 and PRIN 2A. Finally, the board should also oversee consumer outcomes through a company-wide system that tracks risks, controls, and actions.
The FCA's Consumer Duty guidance also sets out some relevant questions that boards can ask companies regularly to ensure those good customer outcomes are continually met within paragraph 10.15.
5. Ensure you know the important dates & deadlines
To ensure that your firm implements the FCA's Consumer Duty fully and effectively, ensure that you keep yourself abreast of any dates relevant to the FCA's Consumer Duty timeline, such as these:
- An implementation plan needs to be in place by the end of October 2022.
- Manufacturers will need to complete all reviews to satisfy the four outcomes and must do so by the end of April 2023.
- The first implementation on 31 July 2023 applies to a firm's new and existing products and services that can be sold or renewed.
- The second implementation date relevant to the FCA's Consumer Duty is on 31 July 2024, applicable to a product or services held in 'closed books' (refers to existing contracts entered in before 31 July 2023 and were not marked, distributed, or renewed before or after that date).
Next Steps for FCA Consumer Duty Compliance
Implementing the FCA's Consumer Duty will require urgent and significant action to undertake a higher standard of care toward customers. By considering the steps above, companies can begin with robust changes to existing processes, policies, and procedures that the board can continually challenge.
Staff training will become essential in explaining the regulatory and practical steps of the duty but will also ensure a much-needed cultural change in the behaviour towards customers. Lastly, firms must establish a method of monitoring all actions taken to achieve better consumer outcomes within these stringent deadlines.
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