Consumer Duty – No Grace Period for Authorisations
Firms will find it incredibly challenging to meet the Consumer Duty timelines as announced by the FCA last week. 31st July 2023 for all new and existing products or services open for sale and 31st July 2024 for closed products. For firms considering submitting a new application for authorisation, or those currently in the authorisation process, there are no such deadlines – the FCA expects firms to meet the requirements of the Duty with immediate effect. This presents both opportunities and challenges.
Opportunity - pre submission of application
Firms who have yet to submit their authorisation application have the opportunity to ensure their Governance framework is robust, and Duty requirements are embedded from Day 1. From working with a range of firms for many years, when we drill down into the root causes of issues, 9 times out of 10 we get back to Governance and culture. The emphasis the Duty places on Governance and culture should allow new firms to start off on the right foot. Making this happen, in terms of creating an effective, proportionate Governance framework that encompasses all the Duty requirements (and everything else!) is not easy and requires a lot of careful consideration and ideally, independent challenge. However, new firms will not be hamstrung by organisational and cultural challenges that have festered over many years that can make change difficult – they have a clean slate to create their own culture.
Challenge - firms that have already submitted their applications to be authorised
For firms with their application already in, this could be trickier depending on how much a firm embedded Duty requirements into their application. The FCA have said that it expects such firms to meet Duty requirements, so if the application is light on key elements – such as having a framework to monitor customer outcomes, based on appropriate data and MI – then firms should be acting on this now and not waiting to see if the Regulator picks up on it. Key terms such as ‘foreseeable harm’ and ‘fair value’ need to be defined and tailored to the firm’s products and services. Firms will also need to ensure that any Senior Mangers being proposed as SMFs, are aware of the requirements and what the regulator is trying to achieve. That being said, the same upside remains as for firms that have not submitted their application yet, in the sense that there is still the opportunity to get it right from the start and not have to commission a costly change programme to ensure compliance.
Challenge - branches of foreign banks
Irrespective of whether your application is in or not, branches of foreign banks find themselves in a tricky position. Clearly the UK branch will need to comply with the Duty (to the extent it applies), the question is how does it impact Head Office? On one hand a branch could have a UK specific compliance manual that takes Group policies and augments them where necessary for UK requirements that do not feature in home state regulation. However where products are manufactured in the home state for UK teams to sell, there will need to be some work done to ensure Consumer Duty requirements are met. Firms will need to decide whether they want to adopt Duty principles at Head Office level, and if the answer to that is ‘no’, work out how their UK branch can effectively meet their Duty requirements.
How we can help
We are already advising clients on how to ensure that the requirements of the Duty are embedded into their applications – both pre and post submitted ones. Taking time at this stage to carefully think about how your Governance framework is constructed will not only help you to comply with the Duty, but more broadly will put you on a sound footing in terms of running your business. Effective Governance frameworks promote the flow of information and decision making upwards and downwards throughout an organisation. Issues will still occur, but a robust Governance framework will enable Firms to deal with them quickly and effectively. Our experienced consultants have seen hundreds of business models and have a real handle on what works and what presents challenges. Get in touch to for an initial discussion.