In our final piece on the new Consumer Duty, Xcina Consulting reviews Governance and Accountability considerations.
The FCA’s final guidance provides an overview of the types of data firms can use to monitor outcomes – a welcome move given that data is central to the operation of the Duty.
Firms will be asked to share their monitoring approaches with the FCA during the implementation period. Monitoring should be sufficiently sophisticated to track whether distinct groups of customers (such as those with vulnerabilities) experience worse outcomes. Segmentation can be by customer age, geography or distribution channel but does not need to be exhaustive.
Firms must exercise judgment to determine a reporting approach proportionate to their business. The FCA has not issued any formal regulatory reporting requirements at this stage but does not rule out introducing those in future.
As part of its supervisory engagement, the FCA will ask firms to provide the results of their monitoring and Board reports.
The FCA recognises that firms’ cultures must evolve to accommodate the higher standards within the Duty. It has strengthened the rules in PRIN 2A around governance and accountability to ensure that firms fully embed the Duty across every aspect of their business. This has been done in response to concerns (predominantly from the FCA’s Financial Services Consumer Panel) that the draft rules did not ensure adequate senior-level engagement, oversight and accountability in addition to the annual board report on the Duty.
The guidance now makes it clear that the Duty should be reflected in firms’ culture, strategies, governance, leadership and people policies, and incentive structures at all levels.
Firms are expected to have a champion at board level (where possible, a NED) who, along with the CEO and Chair, ensures that the Duty is discussed regularly and raised in all relevant forums. The guidance sets out questions that the board should be asking regularly and those the FCA may ask of firms.
Under Code of Conduct (COCON), Individual Conduct Rule (“ICR”) 6 replaces ICR 4, where an individual conducts business in the scope of the Duty.
ICR 6 has been enhanced to clarify the impact of the scope and seniority of an individual’s role on their obligations. The applicable standard is what could reasonably be expected of a prudent member of Conduct Rules staff. Relevant factors will include the level of expertise the firm expects (and should ensure) that an individual has and the degree of discretion and judgment that a staff member can exercise (e.g. whether they are bound by a script).
The final non-handbook guidance now clarifies that someone in a management or senior position has a greater ability to influence retail customer outcomes. SMF managers on a firm’s governing body or another senior management forum should be concerned with policies and procedures about retail consumers on a firm-wide basis, not just those applying within their immediate area of responsibility.
Senior managers must also ensure their firm complies with any reporting obligations connected to the Duty within the scope of their responsibilities and check whether any necessary notifications have been made, even where they pertain to conduct outside their business areas.
Firms will need to design training to support staff in understanding what will be required of them and to ensure that staff at all seniority levels complete the relevant training.
Timetable for Implementation
November 2022 – April 2023
Manufacturers aim to complete the reviews necessary to meet the four outcomes for existing products.
May – July 2023
Share required information with distributors. Identify and complete any remedial work before 31 July 2023
31 July 2023
Duty comes into force for existing and new products
August 2023 – July 2024
Complete review of closed products. Duty comes into force for closed products.
Earlier related articles on Consumer Duty
FCA expectations for the firms’ strategies, operations and policies
Obligations under the new rules and
How it impacts you – Critical points
Helpful Resources on Consumer Duty
Please get in touch with Xcina Consulting should you have any requirements on the new Consumer Duty or other regulatory obligations.