‘Key role’ of Consumer Duty in supporting customers affected by cost of living crisis
In the Business Plan, the FCA identifies a number of economic uncertainties for the coming year, including interest rates and inflation, unemployment levels, and potential for further declines in real household disposable incomes. In other words, the cost of living crisis is unlikely to end any time soon.
In the context of the continuing squeeze on household incomes, the FCA sees the new Consumer Duty - which comes into force on 31 July - as playing a ‘key role’ in underpinning its work to make sure firms treat customers fairly, support those in difficulty and give them the information they need to make good decisions, including in relation to vulnerable consumers.
Putting consumers’ needs first is one of the four ‘most critical commitments’ for 2023/24
In light of the current economic and geopolitical challenges, the FCA has decided – where additional resources are available - to invest even further in four of its most critical commitments over the coming year. One of these commitments is ‘putting consumers’ needs first’, which falls under an overarching strategic theme of ‘setting and testing higher standards’.
The Consumer Duty - a ‘significant shift’ in the FCA’s expectations of firms – is placed front and centre of the consumer needs commitment. It’s probably no coincidence that it is listed as the first of the four most critical commitments in the related press release. It’s also worth remembering that four of the outcomes under this commitment reflect the four outcomes required under the Consumer Duty:
- Consumers are sold products and services that are designed to meet their needs, characteristics and objectives;
- Consumers pay a price for products and services that represents fair value, and poor value products and services are removed from markets;
- Consumers are equipped with the right information to make effective, timely and properly informed decisions about their products and services; and
- Consumers receive good customer service.
While the emphasis is clearly on the Consumer Duty and the related commitment to put consumers’ needs first, the FCA also points out that many of the activities that it is already doing across a range of commitments also support those who are vulnerable or financially stretched, including those to support its commitment to reduce and prevent financial crime - another one of its four priority areas for 2023/24.
More resources and headcount to focus on embedding the Duty and supporting struggling customers
The FCA is bolstering its resources by investing £5.3m from its annual budget in ensuring the Consumer Duty is embedded effectively within firms, and central to their technology.
There is also a plan to allocate additional staff dedicated to working with firms as they support consumers struggling with higher costs of living. Again, the link between the Duty and the cost of living crisis is made clear.
What specific activities will the extra resources be used for?
The additional funding to be allocated to the Duty will facilitate sector-specific supervisory work, focused on the priorities detailed in the FCA’s Sector and Portfolio letters.
There will also be targeted multi-firm work (eg on fair value and sludge practices) to ‘identify, assertively supervise and effectively enforce against activities which undermine effective competition and good consumer outcomes’.
An additional Interventions team within Enforcement will be created, with the aim of enabling ‘rapid action’ where immediate consumer harm is detected. The Plan also refers to further investigative resource to ensure ‘swifter investigation’ of any potentially serious misconduct discovered.
What about activity that’s already under way?
As made clear in previous communications on the Duty, the FCA plans to continue its work to make the Duty an integral part of its regulatory approach and mindset at every stage of the regulatory lifecycle with an initial focus on the ‘highest priority issues and firms’.
It will continue to work closely with firms and their trade bodies, consumer organisations and wider stakeholders during the Consumer Duty implementation period to provide support and help identify examples of good and poor practice. A recent example of this work is the January 2023 publication of its multi-firm review of Consumer Duty implementation plans. Take a look at our Engage article ‘Implementing UK Consumer Duty: Prioritisation, delivering real change, and teamwork are key’ for more on the findings from this review.
As part of the push for a data-led regulatory approach, the FCA looks to improve its data monitoring capabilities. This includes its Consumer Duty data strategy to identify those firms that fail to prepare for and fully implement the Duty.
Firms should now be well under way with their work to meet the July 2023 deadline for the Consumer Duty.
The next deadline of 30 April 2023 is rapidly approaching. By this date, manufacturers must have completed all the reviews necessary to meet the outcome rules for their existing open products and services, which they should share with distributors to meet their obligations under the Consumer Duty, and identify where changes need to be made.
Our Consumer Duty hub provides a number of useful resources to help firms with their implementation of the Duty.
If you would like to discuss any aspect of the Consumer Duty or the FCA’s Business Plan, please get in touch with one of the listed lawyers or your usual Hogan Lovells contact.
Authored by Virginia Montgomery.