CSA reacts to FCA final Consumer Duty Statement

After a year of consultation and debate, the Financial Conduct Authority have now published their final definitive ‘statement’ on the shape of the new ‘Consumer Duty’. 

Perhaps the simplest summary of their intent is set out in a single paragraph at the outset of their statement, which says:

“Setting higher standards and putting consumers’ needs first is central to our strategy – and the cornerstone of this is the Duty. We want to see a higher level of consumer protection in retail financial markets, where firms compete vigorously in consumers’ interests. Firms need to understand their customers’ needs and to have the flexibility to support them with certainty of our expectations, so they get good outcomes.”

The FCA’s objectives, then, are to protect consumers by testing whether financial service providers not only have insight into the requirements of consumers but are also actively helping them towards positive outcomes. What’s new is the need for firms to proactively evidence the steps they are taking towards this. 

The Duty brings with it a new ‘Consumer Principle’ (‘act to deliver good outcomes’) together with ‘cross-cutting rules’ requiring firms to ‘act in good faith’, ‘avoid causing foreseeable harm’, and ‘enable and support retail customers to pursue their financial objectives’. This must be achieved in particular in the four categories of outcomes the FCA highlight, i.e. products and services, price & value, consumer understanding and consumer support. 

How will all this be enforced by the FCA?

Some new metrics are under consideration, but they intend to monitor consumer outcomes with reference to Financial Ombudsman Service data, gauge levels of trust and confidence through their ‘Financial Lives Survey’ and through collection of supervision, authorisation and firm management information.

The FCA have adjusted their proposed implementation period which will now be phased so that existing and new products & services will be under the scope of the Duty from 31 July 2023 and for products and services held in closed books from 31 July 2024, though significant preparatory work before these dates will clearly be needed.

Senior Manager & Certification Regime (SM&CR) rules are being amended to ensure firm governance must take account of the new Duty. The FCA acknowledge that the Duty could create some unintended consequences which they commit to monitoring. But, by and large, the intentions from early FCA consultations have now been carried through into this financial statement.

While the collections and debt purchase sector are clearly within scope of the Consumer Duty, we know from previous experience that sometimes a new regulatory approach targeted at retail financial services can sit inelegantly with the recoveries process – for instance, if debt purchasers are treated as lenders despite the fact they are neither lending nor are the products concerned actively being provided. The decision by the FCA to define its implementation period in the way it has will therefore be important in the immediate term. 

In our consultation response, we urged the FCA to give thought to situations where an originating creditor sells debt to a purchaser only then to find that the product may fall short of Consumer Duty requirements. We are pleased that the FCA appear to have responded positively to our request, now announcing that “to assist in future sales of product and service books, we are introducing rules to require that, in general, a firm selling a product or service book would need to provide information to the firm buying the book to help them comply with the Duty.” It is welcome that the FCA have listened to our concerns on this matter. 

At the CSA we will work closely with member firms to help adjust to this new framework – our UK Credit and Collections Conference on 15 September in Manchester will be exploring some of the consequences of the FCA statement and our learning & development team are exploring the training and skills implementations required by member firms.