The Financial Conduct Authority (FCA) believes its incoming Consumer Duty rules will eventually mean fewer rule changes and lower compliance costs for the industry.
It emphasised the rules overhaul brought a ‘significant shift’ in what it expected from firms with long-term cultural and behavioural changes being necessary.
FCA executive director for consumers and competition Sheldon Mills said the regulator appreciated the work being done by firms but despite an extension, meeting the implementation timeline would not be easy.
And he added that the FCA had already identified 30 firms that need to do more to help struggling customers and will be investigating a further 40.
‘Significant shift’ for firms
Mills (pictured) was speaking at the Consumer Protection in Financial Services Summit, where he laid out what firms and customers can expect from the Consumer Duty and other regulatory reforms.
He set out some of the key aims and likely impacts, noting that the duty was at the heart of the FCA’s work to make financial services work well for all consumers and would require substantial industry change.
“Be in no doubt: the duty will be a significant shift in what we expect of firms. It means making lasting changes to culture and behaviour to consistently deliver good outcomes,” he said.
“It means putting customers in a position where they can make informed decisions; where they are presented with suitable products and services for their individual needs; and where they receive fair value for those purchases.
“The duty will require all firms, whether designing, selling or advising on products and services, to put their customers’ needs first.
“Trust and confidence in financial services is key and achieving good outcomes for consumers will help do this,” he added.
‘Lower compliance costs’
Mills also argued that there would be more permanent regulatory benefits to the industry as well for investing in this regime.
“The duty provides a real opportunity, in the longer term, to move towards a more flexible and less prescriptive regulatory framework,” he continued.
“We envisage fewer rule changes as a result, which should lower compliance costs to firms. And in so doing so, provide a boost to growth and innovation.
“It will provide a focus on competition in the interests of consumers and support future innovation by being clear about the standards required, whatever the product.”
‘Time is ticking on’
Earlier this week the FCA published the timeline for firms to implement the Consumer Duty, with the deadline for the first stage due one month, which Mills highlighted, noting that “time is ticking on.”
He said the FCA recognised the efforts firms were making to implement the changes and it had listened to feedback and extended the implementation deadline to “ensure we get this right”.
But he acknowledged this “doesn’t mean meeting the deadline will be easy, but we believe the benefits are more important now than ever given the macroeconomic pressures we all face.”
He continued that the regulator does not expect firms to have fully scoped all work required to embed the duty by the October deadline, but plans should be sufficiently developed to provide governing bodies and the FCA with assurance the duty will be fully implemented for new and existing products by next July.
‘Whole product lifecycle’
Mills also addressed one of the key questions from the industry about how the FCA will oversee and intervene on the new regulations.
“While our core supervision activities will remain, our approach will evolve,” he said.
“The data we collect will be focused more on consumer outcomes and we will be looking at the whole product lifecycle.
“We will be seeking evidence from firms of what consumer outcomes are being achieved, and how firms are assuring themselves that they are meeting these outcomes.”
Mills noted that just as the FCA is demanding firms focus on their customer service, the FCA is working to become more operationally efficient and service oriented, as shown by improvements in its authorisations backlog.
“Over time, we expect faster, better decisions will support us in bringing down the costs of the regulatory system,” he added.
