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The FCA Raises Concerns Over Consumer Duty Implementation With January Review

The UK’s Financial Conduct Authority (FCA) warns firms not to fall behind on their implementation plans for consumer duty, as its 31 July deadline creeps closer. 

The FCA has used its January review of the incoming regulation to assess how ready firms actually are to implement consumer duty.

The review highlights that, while some firms are on time with meeting the requirements of the deadline, others are falling behind in their preparations, leaving the risk of struggling to apply the duty effectively once the rules come into force.

‘If firms assume they can ‘get by’ largely with repackaging or supplementing existing data, then they risk not thinking deeply or afresh about the types and granularity of data that they will actually need to monitor and evidence outcomes under the duty effectively,’ the review reads.

What is consumer duty?

The consumer duty intends to set higher and clearer standards of consumer protection across financial services and requires firms to act to deliver good outcomes for customers. It forms a large proportion of the regulator’s efforts to polish the reputation of the financial industry and redefine its relationship with consumers.

It will require firms to better match their products and services to consumers, to ensure that prices are fair, accurate and representative of value, to avoid incurring ‘foreseeable harm’ on their consumers and to adopt a more appropriate company culture that encapsulates all of this.

Firms initially had until the end of October 2022 to present plans for how they’re going to adopt the regulation. Yet even at this early stage, there appeared to be a level of apprehension among firms. Coverage around this time revealed how only 22 per cent of firms believing themselves to be compliant with its timeline.

UK financial marketers are underutilising their data

A Making Science whitepaper published last November put this down to the underutilisation of consumer data within the limited insights available. It notes how almost two-thirds of UK firms currently lack the data or tools to manage advertising campaigns in accordance with the regulation.

This level of inattentiveness was making headlines back when firms should have been approaching their final plans for implementation. And now this January review is confirming it for the regulator itself.

Sheldon Mills, executive director of consumers and competition at the FCA, recognises how the regulation will bring about a step change in the way financial services firms treat their customers.

“Given the scale of the reform, we recognise that some firms need to make significant changes,” he comments. “For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new duty.

“Firms will also see the benefits of the duty, with increased trust in the sector, more flexibility to innovate and in time fewer rule changes.”

New data strategies

In response to the need for better data management tools, MorganAsh has developed the MorganAsh Resilience System (MARS) to help businesses better manage and evaluate consumer vulnerability and comply with consumer duty.

Reflecting on the FCA’s latest review, Andrew Gething, the company’s managing director, comments that as the deadline draws closer, “the FCA’s review highlights the considerable work still required by many firms.”

“The overarching goal of achieving good customer outcomes has created an air of complacency among some firms who believe this is something they already achieve,” continues Gething.

“This is reflected in the report which highlights weak implementation plans, a lack of engagement with senior leaders and a shortfall in adopting new technology. Importantly, the FCA rightly identifies a lack of data strategy, especially to monitor and evidence outcomes.

“This should absolutely be a key focus for firms, and I would argue that successfully managing vulnerability data is key to all other aspects of the regulation.

“Without an objective and consistent approach, many firms are still reporting vulnerable customers in single figures. Meanwhile, firms using tools such as MARS are reporting closer to 50 per cent, in line with the FCA’s own financial lives survey. With such a clear disparity, it’s impossible to ensure fair value or that products meet the needs of clients – key areas of focus for firms.”

Protecting the financially vulnerable

Following this narrative around the consumer duty’s intentions to protect consumers who might be financially vulnerable, Richard Farr describes how the problem stems from too many firms underestimating the distance between the vulnerability support they’re currently providing and that required under consumer duty. He also discusses the areas those firms need to focus on in order to be compliant on time.

Farr is the non-executive director of Comentis, which provides an online cognitive assessment engine to help firms identify and support at-risk customers.

“In its review, the FCA advises firms to ensure they’re prioritising effectively, focussing on the areas that will have the biggest impact on outcomes for their consumers,” comments Farr.

Farr explains how conversations the company has with its financial services clients reflect the main problem areas of the guidance. He says many feel that the step from what they do now to the desired outcome of the consumer duty is a “relatively small one,” adding “they have always strived to deliver great outcomes, therefore they feel little has to change.”

With this in mind, he identified two main problem areas with firms aligning with the FCA’s focus, namely, “differentiating between customer groups and implementing data strategies that can adequately identify, monitor and stand behind the unique outcomes of their customer experience.”

Seeing a solution to this, Farr recommends the use of technology-driven assessment tools, which can help “identify financially vulnerable customers and get the right systems in place, removing subjectivity from the process and ensuring consistency.”

“These kinds of solutions are, arguably, the only way to ensure all vulnerability drivers are in scope,” he adds. “By combining clinical expertise with hard data, they’re able to reassure firms that their systems and controls will adequately meet the scrutiny of regulatory requirements.”

Building the technology foundation

Echoing these thoughts, Nelson Wootton, CEO and co-founder of the UK cloud-native core banking platform SaaScada, explains that if firms have not planned out their budgets effectively or addressed data silos and legacy tech, they risk serious scrutiny from the FCA and fines in cases of serious misconduct.

“Financial services organisations are being asked to achieve an unprecedented level of visibility, with granular real-time insights into customer spending and outcomes so that they can understand customer needs, assess their financial health, and make recommendations effectively,” comments Wootton.

“This means completely re-architecting the delivery of core banking services, using cloud and automation to bring together data points and build an effective picture of every customer, to prove they are being served well by their products.

“At this late stage, firms need to make sure they have planned out their budgets, built the right technology foundation, and done away with any data silos and antiquated processes so they can make clear decisions on which products work for every customer.”

“Firms are in for a world of regulatory hurt in the summer if they don’t act fast, and could even face fines in cases of serious misconduct down the line,” he adds.


  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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