Consumer Duty: Time to Act

Emily Stapleton

A view on the impacts to the pensions, retail investments and advice markets:

The FCA has now published the final iteration of the Consumer Duty rules and guidance, forming part of the FCA’s transformation plans to become a more assertive and data-led regulator.

In the below article, Alpha considers the impact of these finalised rules on the financial services market and highlights what firms need to do to meet the new Consumer Duty timelines.

The delivery timeline has been extended, but firms must act now:

As part of the announcement, the FCA confirmed the long-rumoured extension of implementation timelines to 31 July 2023 for new / existing products or services (and 31 July 2024 for closed products and services).

Whilst the overall timeline has been extended, the regulator continues to apply pressure to the financial services industry by mandating that detailed, deliverable and robust plans for implementation must be in-place by October this year. In line with previous guidance, firms should expect spot checks from the regulator, and be ready to present plans, board papers and associated minutes if asked.

Alpha welcomes the extension to the overall implementation timeline. Given the sentiment of the regulation is to drive a ‘major shift in financial services’ the extended timeline will allow for the major overhaul to truly embed and be embraced by firms. There is significant work to be done to update processes, governance and evidencing approaches, and the extension to delivery timeline will ensure these challenges can be tackled in a more considered and innovative way, which will benefit the industry in the long run.

Through discussions with our clients, Alpha understands that many firms are already a good way through their gap analysis. However, a poll taken at a recent Alpha hosted roundtable found that 30% of participants had not yet commenced a Consumer Duty review project.  With that in mind, what should all firms focus on in order to be ready for October?

The regulator has been explicitly clear on the activities it expects from firms to drive an assertive implementation period. All firms must act now to have the following completed in the next 12 weeks:

  1. Define a robust and deliverable implementation plan
  2. Achieve Board approval and buy-in on implementation plan
  3. Establish governance and reporting to enable Boards to maintain oversight of delivery to ensure it is meeting Duty standards
Figure 1: Overview of the new Consumer Duty timeline

The regulator has held firm on the broad scope of Consumer Duty:

The final announcement of the Consumer Duty guidance remains largely unchanged with respect to the scope and desired outcomes of the regulation, however it did provide additional helpful guidance as well as the promise of sector-specific webinars.

Whilst firms continue to digest the specifics of the final regulations and guidance, Alpha have included some key considerations and focus points for firms in the advice and platform business:

  • Clear Responsibilities – The regulator has made it very clear all participants in the value chain will be bound to Consumer Duty regulations, regardless of how close they are to the distribution of products. Alpha firmly believes that all clients should see this as an indication that they need to be thorough in their response to the new regulations.
  • Value Assessment – Although commonplace in Asset Management, there is work required by platform and advice firms to clearly articulate and evidence the value they bring to customers, and how this compares with alternative options in the market. This creates an excellent opportunity for these firms to demonstrate the value they deliver to their clients
  • Client Segmentation – Distributors / advisers will need to clearly define and document detailed client segmentation and target market frameworks. Alpha sees this as a specific area of weakness for a number of distributors and providers of investment solutions currently.
  • Data and MI – Enhanced Data and MI is required to systemise the monitoring of positive customer outcomes. Although suitability assessments are commonplace already, Alpha sees a gap currently in how suitability is monitored on an ongoing basis and how distributers evidence customers remain aligned to target markets as their needs and circumstances change.
  • Obligation Definition – Firms must ensure their internal obligations are clearly defined across the full value chain. Alpha expects there will need to be greater accountability against the different actors within the value chain, including those internalised within firms. Therefore, firms must be able to evidence that they are fulfilling their respective duties in this area..
  • Closed Products – Whilst the timeline to fulfil duties around closed products has been extended to 2024 (and not enacted in retrospect), firms must still be confident that all heritage customers are being provided with the same level of duty as newer customers. Additionally, there will remain obligations for consolidators who will need to take appropriate action to avoid causing foreseeable harm and provide fair value.

How Alpha can help:

Alpha is already helping a number of our clients to respond to the Consumer Duty regulations and have developed a toolkit to support our clients with gap analysis and implementation. We would be delighted to speak to firms facing these challenges and provide our expert insights.


About the Author

Emily Stapleton

Emily is a Manager at Alpha and has over 5 years worth of experience working with Wealth Managers, Pension and Retail Investment providers and Asset Managers. Emily manages Alpha’s consumer duty proposition within the Pension and Retail Investments practice, and has experience supporting numerous firms to deliver their strategic initiatives in line with major industry changes. Emily is also the UK Lead of Alpha’s Gender Equality Committee