The FCA has published the results of its review of the Consumer Duty implementation plans of larger firms, in order to help firms understand its expectations.

You can read the results here. The findings reflect that, while many of the plans reviewed evidenced firms had established extensive programmes of work to embed the Duty, they also identified a number of areas for improvement and that some firms were further behind in their planning for the Consumer Duty.

Firms were required to have implementation plans in place by the end of October 2022 with the Consumer Duty rules coming into full force on 31 July 2023. The FCA have raised concerns that some firms may not be ready in time or may struggle to embed the Consumer Duty by the required date.

Around 60 of the largest firms (all of which operate in the retail financial services market) were sampled, with mixed findings. A number of good practice areas were documented across a range of areas including governance and oversight, culture and people, deliverability and third parties, in addition to the four outcomes (notably product and services, consumer understanding, consumer support and price and value). However, more concerningly, the review also highlights a number of areas for improvement, including identifying that some firms’ plans were too high level and that insufficient consideration was being given to the implementation of these plans.

The FCA has indicated that they will be looking to engage with smaller firms prior to the implementation of Consumer Duty in July 2023 and they will also be issuing a survey to a sample of different sized firms.

What now?

Following the review, the FCA have stated that over the remaining period to 31 July 2023, firms should focus on these key areas:

• Prioritising: Firms should look to focus on the areas that are most likely to make the biggest impact and reduce poor customer outcomes.
• Implementing changes: Firms should look to make the changes that they need to in order to comply with the customer duty. A good starting point is the customer journey and firms should consider the products and services they offer in addition to the way they communicate with clients
• Working with other firms: A key element of being able to implement the Consumer Duty on time is working with other firms and sharing information with those in the distribution chain. Firms should therefore look to work closely with their others in the distribution chain in order to deliver good customer outcomes.

All well and good but we remain firmly of the view that the ‘Price and Value’ outcome could well be the toughest nut to crack for many, if not most, firms regardless of size.

Price and Value

The reason why this may prove difficult for firms is that it will probably require a fundamental change to business models, which could have a significant impact on business financials. Many firms are still operating a charging model that started with RDR in 2013 and which was based on a x% initial plus y% ongoing format not unlike the initial plus trail commission model that preceded it. The FCA have raised several concerns around such a model, including the potential for unfairness where a client with a larger portfolio is charged more for essentially the same service.

The FCA noted that:

• Several firms explained they are considering how their current approach needs to change to deliver good outcomes for consumers.
• One firm noted it needs to ensure there is a reasonable relationship between costs and benefits.
• Another firm noted that it has new pricing models under development.
• One firm recognised that its product pricing structure may need to change to address an issue it has identified in relation to high fees. 

While recognising that the sample of firms was relatively small compared to the total number of firms, we are surprised that the comments relate to ‘several firms’ and  ‘one firm’. The four actions listed above are almost certain to apply to ALL firms. A good starting point would be to properly identify the cost of delivering services and using that as a starting point for a new charging structure that is not only fair value for clients but also appropriately profitable for the firm.