One year of the FCA’s UK Consumer Duty - The regulator takes stock

Over the past several years, a major focus for UK authorised firms and the Financial Conduct Authority (FCA) alike has been the implementation of the Consumer Duty (the Duty). To mark one year since the Duty first came into force (for new and existing products and services open to sale or renewal) on 31 July 2023, as well as its coming into effect for closed products and services on 31 July 2024, the FCA held a session on 31 July 2024 to take stock and look ahead to the coming months.

Following speeches by Sheldon Mills (Executive Director for Consumers and Competition at the FCA) and Abby Thomas (Chief Executive and Chief Ombudsman at the Financial Ombudsman Service (FOS)), the FCA held a panel discussion to discuss some of the key themes emerging from the past year. Panellists included Abby Thomas and, from the FCA, Therese Chambers (Joint Executive Director of Enforcement and Market Oversight), Graeme Reynolds (Director of Competition) and Dominic Cashman (Director of Authorisations).

Picking up on many of the key messages which the regulator has previously given on the Duty and providing a flavour of how the FCA and the FOS view the impact of the Duty so far, a number of interesting points were raised in the FCA’s session, including the following.

An ongoing journey

• A need for continuous improvement: The FCA reiterated that the Duty is not a “once and done” deal but an ongoing journey of improvement. The Duty now being in force across all of retail financial services is only the end of the beginning of firms’ implementation, and firms will need to continue to make improvements in a number of areas. In the spirit of a culture of continuous improvement, they should be guided in this by the significant number of materials made available to firms by the FCA, including examples of good and poor practice. 
• Increased consumer trust: For the FCA, a successful implementation of the Duty will mean an increased level of consumer trust in financial services and a decrease in overall (successful) complaints brought by customers, reflecting a reduction in issues faced by them.
• Innovation: The FCA would also like to see more innovation by firms in their offering to and interactions with customers to ensure good outcomes. 
• Post-implementation review: The FCA will conduct a post-implementation review of the Duty once it has been in force for a number of years, which will include an assessment of these factors. 

Success stories and examples of good practice

• Positive changes: Many firms have made positive changes to their practices and business models in response to the Duty, and the Duty is already having a tangible impact on consumer outcomes. For example: 

1. firms have acted more quickly to increase rates offered to customers following base rate increases; 
2. in relation to the treatment by platform investment providers of interest on cash balances, many firms have stopped “double dipping” (i.e. retaining interest received on cash balances while also charging customers for cash custody); and 
3. the FCA has also seen firms developing new data and metrics to better understand their customers and making changes to their customer communications. 

• Healthy culture: The FCA has seen the best results where firms have a firm-wide culture aligned with customer interests. This requires a holistic approach, putting customers at the heart of the firm’s approach and ensuring that there is space for healthy challenge within the business. Firms need to focus not just on compliance, but on delivering what customers want. Consumer Duty board champions and board reports can have an important role to play in this regard. A healthy culture also requires a culture of continuous improvement, with firms being responsive to, for example, changes in their environment and feedback from the regulator. 
• Stepping into the customer’s shoes: The FOS’s experience is also that the best examples of good implementation of the Duty are those where businesses have mapped the customer’s journey and sought to step into their shoes to understand what customers may be concerned with.
• Applications for authorisation: The FCA has seen a significant improvement since the Duty came into force in how applicants for authorisation consider the Duty. Rather than being an afterthought, the Duty is now more consistently considered throughout all parts of applications.

Challenges faced by firms 

• Fair value and outcomes: The FCA noted that some of the biggest areas of challenge for firms have been fair value assessments and outcomes monitoring. 
• Effective and holistic fair value assessments: The FCA reiterated that its role is not to set prices, but to ensure that firms are assessing whether they offer fair value to customers and take appropriate action where they do not. Profits can be positive in driving innovation and better consumer services, but they must not come at the expense of fair value. Overall value includes not only price but also points such as customer understanding and service. To ensure effective, holistic fair value assessments, firms will need to take steps such as conducting appropriate benchmarking as a starting point (based on comparable firms and products), obtaining solid data and credible evidence, considering customer cohorts based on target markets and clearly examining price against the benefits customers can expect to receive.
• Monitoring good outcomes: On outcomes monitoring, the FCA reiterated the importance of the firm putting itself in the customer’s shoes to understand the issues they may come across, what actions the firm should take to ensure good outcomes and what information is needed to monitor their effectiveness. The FCA’s recent insurance multi-firm review of outcomes monitoring in relation to the Duty provides further guidance to firms based on the FCA’s findings in this space.  
• Issues flagged by the FOS: Abby Thomas, the CEO of the FOS, also noted that some areas stand out as causing issues in the Consumer Duty space based on the cases seen by the FOS. These include:

1. inappropriate or inadequate information being provided by firms on products and services; 
2. poor administration in customer services, such as a lack of support; and 
3. insufficient consideration being given to customers’ individual needs. 

It is vital for firms to consider complaints data to establish where problems are occurring, and rather than justifying the status quo, firms should view customer complaints as a prompt to improving issues. 

• Enforcement action may be taken where appropriate: The FCA recognises that the Duty marks a significant shift for firms, and it intends to work collaboratively with firms to ensure effective implementation. However, the FCA is willing to take enforcement action where this is appropriate, which could include cases where firms do not make appropriate changes to their practices following feedback from the FCA. 

Supporting growth and innovation 

• Flexibility to allow for innovation: The FCA stressed that the Duty is not intended to protect consumers at the expense of growth or innovation. The FCA recognises that consumers’ needs change as technology develops, such as with the advent of digital wallets. The Duty is flexible enough to allow space for firms to innovate and also supports the FCA’s new secondary objective on international competitiveness and growth.
• Encouraging innovation, whilst ensuring inclusion: The FCA sees itself as an internationally leading regulator in encouraging innovation, with its initiatives including the Digital Sandbox, the AI and Digital Hub, which it is working on as part of the Digital Regulation Cooperation Forum, and an upcoming AI Sandbox. However, innovation must not come at the expense of inclusion, and the FCA is working in parallel to ensure this is not the case (for example, through its work on access to cash). 

Flexibility and proportionality

• Proportionate approach to supervision: The FCA stressed that it will continue to be proportionate in its approach to supervision. The Duty allows smaller firms to take an approach that fits their size, the activities they undertake, the market they operate in and the needs and circumstances of their customers. 
• Flexibility in compliance: The FCA’s recent Call for Input on a review of FCA requirements (on which see further below) is also intended to address this. A move away from certain prescriptive requirements on the basis of the introduction of the more outcomes-based Duty would allow firms more flexibility in how they comply with the FCA’s expectations (though the FCA recognises that some firms, especially larger ones, may prefer a prescriptive approach). 

What’s next? 

The FCA confirmed that in the coming weeks, it will publish a grid of its forward programme of Consumer Duty work. This prioritises initiatives where:

1. there is a need to act to address actual or potential harm to retail customers;
2. the FCA wants a greater understanding of firms’ implementation, customer outcomes or potential issues; and 
3. the FCA believes that sharing more information on good practice and regulatory expectations will help to drive better outcomes. 

The programme will include thematic work across sectors as well as work on specific sectors, products or services, and the FCA’s focus will remain on the price and value outcome.

The FCA recognises that the Duty has added to the FCA’s already comprehensive Handbook, and particularly smaller firms have raised concerns about the complexity of the FCA’s rules. To address this, the FCA published a Call for Input on 29 July to explore possible simplifications to current retail conduct requirements for firms. This is intended to address any areas of duplication or over-prescription which create unnecessary regulatory costs. 

More broadly, the FCA and the FOS will continue to cooperate closely, sharing learnings from their respective roles with each other and ensuring alignment and consistency in how the Duty is interpreted.

Whilst taking stock of the Consumer Duty journey to date, including improvements in consumer outcomes, firm culture and governance, it is clear that firms will need to continue the ongoing journey of improvement to address the challenges outlined by the regulator and ensure consumers have appropriate access to products and services that meet their needs.