Dear CEO/Director | Release Date: 3rd March 2023
To read a shorter summary of this Dear CEO/Director letter, click here.
To access the original FCA document, click here.
Long Summary
The Financial Conduct Authority (FCA) has implemented the Consumer Duty to enhance consumer protection standards significantly within the Retail Finance sector. This directive emphasises an outcomes-based approach and raises the standard of care that firms must provide to their customers.
Implementation Timeline
The FCA has set a specific timeline for the implementation of the Consumer Duty:
- End of October 2022: Firms are expected to have finalised their plans for implementing the Duty.
- End of April 2023: Manufacturers must complete all necessary reviews to comply with the outcome rules and communicate this information with their distributors.
- 31 July 2023: The Duty will apply to all new and existing products or services that are open for sale or renewal.
- 31 July 2024: The Duty will extend to closed products or services.
Scope and Application
The Consumer Duty applies across the board to all retail finance products and services. It encompasses firms that influence customer outcomes directly or indirectly, ensuring that the Duty’s standards are uniformly applied throughout the sector.
Detailed Requirements
Outlined in the Finalised Guidance published in July, the Consumer Duty requires firms to:
- Act in good faith, avoid causing foreseeable harm, and actively support customers in achieving their financial objectives.
- Consider the diverse needs of their customers, particularly those who are vulnerable (as detailed in chapters 4-5 of the Guidance).
- Ensure that products and services meet the specific needs of their target market (outlined in chapter 6).
- Provide products and services that offer fair value, ensuring a reasonable relationship between the cost to consumers and the benefits they receive (chapter 7).
- Enhance consumer understanding through clear, supportive, and effective communication (chapter 8).
- Offer ongoing support that meets customer needs throughout the lifecycle of the product or service (chapter 9).
Expectations for Integration
The FCA expects Retail Finance Providers to integrate the Consumer Duty thoroughly within their operational practices:
- Strategic Alignment: Business strategies and objectives should focus on delivering favorable consumer outcomes.
- Cultural Integration: Firms are expected to cultivate a consumer-focused culture throughout the organisation, driven by top-level leadership.
- Operational Compliance: Firms must ensure comprehensive compliance with the Duty in all aspects of their operations, from product design to customer interactions.
Feedback on Implementation Plans
From its reviews, the FCA has observed that many firms have adapted well to the framework, though some are still behind, which may pose risks of non-compliance by the deadline.
Key areas for attention include:
- Effective Prioritisation: Firms need to identify and prioritise areas that significantly impact consumer outcomes.
- Deep Integration: Firms are urged to embed the Duty’s requirements deeply into their business practices.
- Collaborative Efforts: Enhanced cooperation within distribution chains is crucial for a comprehensive and uniform implementation of the Duty.
Supervisory Strategy and Next Steps
The Consumer Duty is integral to the FCA’s three-year strategic plan and is prioritised across all levels to continuously elevate consumer protection standards. The FCA’s supervisory approach will focus on ensuring compliance and fostering an environment where consumer outcomes are consistently improved across the Retail Finance sector.
Conclusion
The implementation of the Consumer Duty in the Retail Finance Providers portfolio is vital for enhancing consumer protection standards in response to the evolving economic challenges, including the ongoing cost-of-living crisis. By embracing strategic compliance and fostering a leadership-driven culture of consumer-centric practices, Retail Finance Providers are expected to play a pivotal role in enhancing consumer trust and achieving better financial outcomes across the marketplace.