What firms can do now to meet the Consumer Duty deadline

Financial services firms are continuing to move toward implementation with significant progress made. From our participants, 95% have conducted gap analysis (up from 74% in our study from June 2022) and 83% have completed product reviews (up from 26% in June 2022). Slightly fewer firms have conducted board training and reviewed their management information (80%) and defined “good customer outcomes” in accordance with the duty (76%). Similar percentages of survey respondents say some of these activities are ready for transition to business-as-usual operations. 

This is impressive progress. However, looking closely at immediate-term needs, it is clear that key actions are necessary, including a more detailed review of product portfolios for compliance with the duty’s requirements. Further technology changes will also be necessary for some firms. 

Respondent comments also suggest that many firms may have substantial work to do. Among the biggest gaps cited by participants in our survey are: 

• “Truly understanding target market and customer needs … from the perspective of where the FCA wants the industry to move.”

• “Time and the general nature of the rules.”

• “Theoretical nature of the requirements themselves.” 

• “Defining fair value and evidencing good outcomes.”

• “Competing business priorities and SME availability.”

• “Upfront testing of communications and retrospective outcomes testing.”

• “Senior stakeholder buy-in.”

• “Reliance on third parties.”

The outlook for the April 2023 deadline

While most firms (85%) are confident they will comply with the deadline for manufacturers to review all open products and sharing information with third-party firms, only 15% said they are fully ready. This is a significant gap, given the industry’s reliance on partnerships and ecosystems. 

Furthermore, firms can be held accountable to the duty’s principles for processes and interactions that occur outside their organisational boundaries. Currently, less than a quarter (22%) of our survey respondents said they clearly understand what they will receive and how they will use it. The immediate goal must be to gain clarity on the information to be received and confidence on whether their distribution strategies will be compliant. The firms and their partners must achieve the same level of understanding relative to the duty as soon as possible.

The variance between the FCA’s expectations and firms’ self-assessment of their readiness reflects the different sizes and types of firms in our survey sample. But it also reveals a deeper uncertainty about the overall impacts on the business and the absence of well-defined implementation strategies. Given that the impacts of the duty will impact beyond the initial implementation dates, most firms would be well served to develop strategies, even at this seemingly late date. Any such strategies should prominently feature technology and data, the product portfolio and cultural change, three key areas where firms must focus immediately to ensure compliance in line with the FCA’s timelines. With the FCA making clear that it will not move its implementation deadlines, boards should consider where they need to accelerate progress to achieve at least minimum levels of compliance.

1. Technology and data are critical concerns

Most firms are looking at what data is available in the business but collecting suitable metrics and management information is the top concern of survey respondents. Firms are focussed on baseline technology change, citing customer relationship management, client communications and service and product governance as the three areas needing the most technological transformation. 

Our results suggest firms have been more reactive than strategy-led in setting the technology transformation agenda relative to the duty implementation. It’s critical that business aligns technology changes to target customer outcomes and business objectives. It's also important to consider the governance implications when looking at data implications; the issues extend beyond technology and may require senior managers to make tough decisions about the key metrics and behaviours to be tracked.

2. Products are an immediate-term priority 

Eight out of ten firms have now assessed products and services for foreseeable harm for customers. That is an improvement from our survey in June 2022, when only 26% of the companies had done so.

However, most survey respondents said they would not have to modify or refine products to achieve compliance, with some variance by type of firm. The FCA would not likely agree with that assessment and might view it as evidence of overconfidence or misplaced optimism. 

Firms’ confidence relative to their products suggests that their analysis has not considered the full range of customers. They also raise the question of whether firms are missing out on an opportunity to enhance products to drive better outcomes in line with the expectations of the duty. Only half of firms have identified such enhancements. Over time, all firms will add features and take steps to make their products more attractive; but it’s critical that those efforts are aligned to the duty’s requirements and relative to customer outcomes. 

3. Cultural change needs urgent attention

Most firms are focussed on equipping their staff with training, which is the first step. It’s encouraging that all firms are planning to train their people and teams around the duty’s principles generally, in addition to the requirements of their specific roles. 

However, the fact that nearly two-thirds of firms say their workers have the right skills and capabilities to implement the Consumer Duty suggests they may be underestimating the impact and scope of the changes. It’s not purely skill and capabilities, but also a mindset shift that will best position firms to succeed in the post-implementation future. In our engagement with firms across the industry, we’ve seen only a few appreciating the full impact and designing their training accordingly.

Ideally, people at every level of the enterprise will learn to view things from the perspective of their customers and be empowered to actively seek ways to provide more value. In this sense, the duty can prompt firms to embed customer centricity within their culture. Training is key, but executive and non-executive leaders must set the tone at the top – including newly named Consumer Duty champions serving as advocates for the duty’s benefits. 

Cultural change is perhaps the most difficult requirement associated with the duty but also the most powerful capability firms could gain from compliance. And it is, as the FCA recognises, likely to be a long-term process, not something that will be completed by July 2023.

Focussing on near-term priorities

Firms that are concerned about the April and July deadlines should take these four key steps immediately:

1. Undertake a rapid, but thorough, review of the impacts of the Consumer Duty across every aspect of the business.
2. Make sure action plans prioritise those issues with the greatest risk of harm; the FCA recommends³ “focussing on reducing the risk of poor consumer outcomes and assessing where [firms] are likely to be furthest away from the requirements of the duty.”
3. Be precise in identifying where changes are necessary in products and services, customer communications and other touchpoints across customer journeys.
4. Engage risk management and internal audit teams to provide assessments of the controls in place for implementation before the deadlines, but also for reviews of post-deadline work and other planned changes.

Firms at risk of falling short of compliance requirements by the deadline should consider contingency plans. How the FCA will supervise non-compliant firms and enforce the duty are uncertain. The FCA’s Sheldon Mills has said², “After the deadline, we will take a pragmatic and proportionate approach and will help those who are taking their final steps towards meeting the standards of the duty.” Firms that are not yet compliant will need to show active engagement with the substance of the duty requirements, clear tactical plans to get compliant as soon as possible, and openness to further FCA reviews. Many firms adopted “plans for plans” in October that will no longer be deemed adequate with the regulator as deadlines come closer.

Based on our engagement with both regulators and a range of firms, we believe that such strategic efforts are critical not just to driving value for the business, but also for satisfying the FCA’s intent. That intent is to ensure that every financial product offered delivers quality outcomes for all customers. Firms that substantially comply by July 2023 will continue to be judged by this higher standard into the future. 

Harvesting the value will depend on firms’ urgent actions in the months ahead and on their unique product set, customer bases and business objectives. But it’s critical to remember that firms taking strategic action now and, in the future, will realise the benefits for a long time to come. Consumer Duty should not be viewed as a one-time undertaking, but rather a long-term journey on which firms can generate value for customers and their own bottom lines.