Today the FCA has published PS22/9, containing its final rules for its new Consumer Duty. It has also published finalised non-Handbook guidance, which has been expanded to include more examples of how the FCA expects firms to apply the Duty in practice.
The Duty is made up of an overarching principle and new rules firms will have to follow. The new rules will rules require firms to consider the needs, characteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave, at every stage of the customer journey. As well as acting to deliver good customer outcomes, firms will need to understand and evidence whether those outcomes are being met.
The Duty forms part of the FCA's transformation to becoming a more assertive and data-led regulator. With firms assessing how they’re meeting their customers’ needs, the FCA will be able to quickly identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms.
The FCA is making a number of changes to its rules following feedback it received on its consultation. Key themes here include:
- The implementation timetable - FCA is now giving firms a phased (and longer) implementation period. Firms now have 12 months to implement the new rules for all new and existing products and services that are currently on sale - an increase from the 9 month implementation period consulted on. The rules will not need to be implemented to closed book products until July 2024. During the implementation period, the FCA will be hosting a series of industry events to help firms prepare for the new rules coming into force.
- Risk of retrospective application - the FCA wants the Duty to apply going forward, but also to existing and closed book products and services, creating a risk of the Duty inadvertently applying retrospectively. The FCA is introducing new guidance on applying the Duty in this context.
- Governance and accountability - new proposals to ensure firms are clear where responsibility lies with senior management has been included as well as requirements that the Duty must be reflected in firms’ strategies, governance, leadership and people policies.
Although there is a July 2023 implementation date, the policy statement includes expectations from the FCA as to what firms should be doing during the implementation period and by when:
- By the end of October 2022, firms’ boards should have agreed their implementation plans and be able to evidence they have scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standards. Firms should expect to be asked to share implementation plans, board papers and minutes with FCA supervisors and be challenged on their contents.
- Manufacturers should aim to complete all the reviews necessary to meet the four outcome rules for their existing open products and services by the end of April 2023.
'The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.'