Dear CEO: you’re not doing enough on consumer duty…
The FCA has issued a series of Dear CEO letters outlining its expectations on the application of the Consumer Duty, across eight different sectors. For all sectors the themes in the main body of the letters are broadly aligned. Namely, time is ticking, don’t be complacent, take personal responsibility. This messaging, although not new, delivers a clear warning to Firms that the FCA are prepared to play tough. This is not an initiative that will fade into a tick box exercise like TCF, this time the regulator appears much more joined up internally on their approach to implementation.
For any Firm working on Consumer Duty implementation these letters are more than a must read they are a must act.
Our key takeaways:
Pay attention to the Annex’s: The best insight into the expectations by sector can be found in the supporting annexes of each letter. Last week the FCA asked Firms to prioritise their plans, by moving high risk areas to the top of the list. To identify high risk areas, you firstly need to understand the practices that carry the highest inherent risk of customer harm, and secondly how far you are away from the requirements. The Annex won’t help you with the latter, but it will give you a good idea of key areas of concern that should be taken into consideration when prioritising your plan.
Its personal: The SMCR isn’t going anywhere, and the Duty holds individuals personally responsible for meeting expectations. If you have not already upskilled your management team on the requirements and outcomes of the Duty, it will be tricky to evidence how they were appropriately skilled to provide effective challenge and oversight. There needs to be a clear record of decision making and discussion – demonstrable compliance, not just compliance by chance. This sounds easy, but all too often we see the difficult decisions being taken outside of the committee framework. Having a clear audit trail will be essential moving forward, not only for the Firm but for Senior Managers personal accountability.
Culture drives conduct: In our view you can’t successfully implement the Duty without considering culture. The two are intrinsically linked and we have been surprised by the number of plans we have reviewed that don’t make any reference to culture. The FCA will be looking closely at what you are doing to measure and improve your culture so that it delivers the right outcomes for customers.
Define good outcomes now: If you were expecting the regulator to tell you what a good outcome looks like for your firm think again! Many placed their implementation plans on a hiatus, whilst they waited for clearer guidance on what good outcomes look like. This is not going to happen. To know what good looks like you have to clearly understand your target market and the products and services you are providing, two key requirements of the Duty. Every Firm will be slightly different from the next so what ‘good’ looks like should be bespoke to what you do and the customers you serve.
Don’t forget data: Firms need a clear data strategy which identifies the required data and relevant sources needed to evidence compliance with the Duty. This MI will not only be needed for internal assurance, but it is likely to be requested by the FCA for supervision as part of their “data led” strategy. We often find Firms are drowning in data, the hard work comes in working out what to use and when to ensure effective challenge and assurance.
How we can help
We are already advising clients across a number of sectors on how to ensure that the requirements of the Duty are met by the impending deadlines. We recognise that each Firm is different and will have different needs. Our experienced consultants have valuable insight into how to achieve compliance with the key themes mentioned above. Please get in touch to for an initial discussion.
