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FCA Consumer Duty - Less than 5 weeks to go

As we close in on July, we are soon approaching the first year of FCA Consumer Duty implementation for open products/services within the UK. The 31st July 2024 will also represent the introduction of the Consumer Duty for closed products/services, marking the final stage of implementation. Despite this, the Consumer Duty is far from a one-and-done implementation and requires ongoing monitoring and work throughout in-scope firms.

The FCA has been communicating with the industry throughout 2024 through speeches, Dear CEO letters, and collaborating with industry participants to deliver guidance and advice for the Consumer Duty. This is particularly pertinent around the upcoming Board Report, for evaluating and evidencing successful outcomes and implementation for the first year of the Consumer Duty being in effect for open products.

We list below the key focus areas firms should be prioritising ahead of the Annual Board Report and the questions we are hearing throughout the industry:

 

     1. Is our report sufficient for the FCA?

Reiterated on multiple occasions, the Consumer Duty Board Report is not a one-size-fits-all document. The FCA are seeking to understand in detail how individual firms can demonstrate their journey through the Consumer Duty implementation since its inaugural date on 31st July 2023. While there are several examples of industry guidance and structural guidance for the Consumer Duty Board Report, is this a fit for all firms? We believe firms must evaluate their own business model and structure the Board Report accordingly. The content should be tailored in length and depth to the focus areas of your business. For example, a business with direct retail clients should have more detail in the Customer Support outcome than those with no direct retail.

 

     2. How should we address limitations and gaps?

For most firms, we understand the biggest limitation for investment firms is gathering distributor data. We expect all firms to have top-down due diligence over their key distributors in their distribution chain, but effective distribution governance requires feedback from the distributor community – this is lacking. For example, Boards may wish to highlight what they can control internally through their own due diligence whilst highlighting the challenges they face in receiving decision-useful information back. A key question for most firms is whether the Distributor Feedback Template (DFT) fields provide investment managers with decision-useful information and whether this will satisfy the FCA’s expectations!

 

     3. Data vs Journey Paradigm

Despite the focus towards data-driven regulation and MI, the Consumer Duty Board Report should not read like the quarterly Consumer Duty MI received by the Consumer Duty Champion. The FCA has emphasised the importance of the firm’s Consumer Duty journey being described throughout the report – effectively conveying the steps, actions, observations and remediations will prove valuable when evidencing compliance with the Consumer Duty requirements across all four outcomes. In addition, aligned to Point 2, firms should highlight areas of limitations and their mitigations. Naturally, this will require an appropriate use of MI to support any actions and statements made for meeting Consumer Duty requirements, the nature of clients, operating models, and how this has directly and indirectly impacted the end consumer.

 

How can we help?

The Devlin Mambo team have been working with a variety of clients on the Consumer Duty implementation and assurance on Annual Board Reports We have developed tools to help our clients address issues in Consumer Understanding, Distribution Governance, and enhancing the Direct Book experience.

For further information, please contact your relationship contact or a member of the team.

About the author

Harry Phillips

Analyst

Delivering a 360° service to the asset management industry

Devlin Mambo

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