The Financial Conduct Authority (FCA) is already planning for a post-implementation review of its Consumer Duty and has strengthened oversight demands on senior people within firms.
The regulator said the review would be a part of its ongoing monitoring of outcomes from the new duty while consultation respondents had urged it to place more responsibility on senior leaders within firms.
More than 150 people and organisations responded to the regulator’s previous consultation on the Consumer Duty which it published in December.
The FCA said many welcomed proposed amendments to its Senior Manager and Certification Regime (SM&CR) rules and requirements that the management or board of firms should ensure their customers were getting outcomes consistent with the duty.
However consumer organisations, including the FCA Consumer Panel, raised concerns that without sufficient senior level accountability and oversight, the duty would not achieve the outcomes the regulator is seeking.
The FCA responded by introducing more details to ensure firms are clear where responsibility lies and that it expects the duty to be reflected in firms’ strategies, governance, leadership and people policies.
Unintended consequences
Stakeholders also noted the risk of the duty leading to unintended consequences, such as the withdrawal of products or services for certain customer segments, such as higher risk consumers.
The FCA said it did not want to see firms reducing access to appropriate products and services that offer fair value to their target markets as this would not support its objectives or its wider business priorities.
Almost all respondents agreed that supervision and enforcement of the duty will be critical to its success and several wanted greater clarity about how the regulator will supervise the duty in practice, and which sectors the regulator proposed to focus on first.
“We will work closely with firms, consumer organisations and other partners during the implementation period to help ensure that firms do not feel they need to withdraw products or services that are suitable and fair value,” the FCA said.
“As well actively monitoring for unintended consequences, we will also consider any evidence that this has happened as part of a post‑implementation review.”
Some respondents argued that the regulator should set out in more detail what success looks like and how it proposes to measure successful outcomes while some asked for a commitment to a clear timetable to review the implementation of the duty, and to report on progress.
Supervision of FOS complaints
Further responding to submisisons, the FCA revealed it is developing a supervisory approach to ensure that firms implement the duty effectively and is already planning for a post-implementation review.
“During the implementation period, we will monitor firms’ readiness and will feed back useful insights we gather to the market,” it said.
“Once the duty is in force, we will use a range of tools to assess firms’ compliance. We will also monitor how the market may change following implementation of our rules.”
It added: “We are proposing to undertake a post‑implementation review to understand how firms have implemented the duty, whether it is having the intended effect and whether it is leading to any unintended consequences.”
The FCA committed to measuring the success of its proposals by monitoring key outcomes for consumers.
For example, one way it cited to observe if consumers were getting products and services which met their needs and provide fair value was through monitoring Financial Ombudsman Service (FOS) final decisions on complaints about fees or charges or inappropriate product or service sales.
The regulator added it will also monitor what products and services consumers use, and measure what consumers are seeing and feeling and their levels of trust and confidence, including through its Financial Lives Survey.
It added it will evaluate the success of the proposals by using data from a variety of sources including supervision and authorisation activities, firm management information (MI), and complaints data.
And as the duty is implemented, the FCA said it will develop further metrics by which it can assess its impact at the level of particular sectors and portfolios, and will ask stakeholders for views and suggestions on potential metrics.