General
A firm’s board or equivalent governing body is responsible for ensuring that the Consumer Duty is properly embedded within their firm. Senior managers will be held accountable through the Senior Managers & Certification Regime (SM&CR).[1]
Initial implementation of the Consumer Duty
As part of agreeing plans to implement the Consumer Duty by 31 October 2022, boards were required to be able to evidence they had scrutinised and challenged their implementation plans to ensure they were deliverable and robust.
Boards were required to maintain oversight of their firm’s implementation plans to ensure they remained on track and that they were sufficient to comply with the obligations under the Consumer Duty.[2] They were expected to be able to demonstrate progress in terms of implementation when asked to do so by the FCA.[3] More specifically, they were expected to be asked to share implementation plans, board papers and minutes with supervisors and to be challenged on their contents.
Firms were also required to have a post-implementation review.[4]
Annual board report
A firm’s board, or equivalent governing body, should review and approve an assessment of whether the firm is delivering good outcomes for its customers under the Consumer Duty and any actions required as a result of the monitoring.[5]
The FCA expects the first such report to be considered by the board or equivalent management body within 12 months of the Consumer Duty rules coming into force[6] and it should be conducted at least annually thereafter.[7] This assessment should include:
- the results of the monitoring that the firm has undertaken to assess whether products and services are delivering expected outcomes in line with the Consumer Duty, any evidence of poor outcomes, including whether any group of customers is receiving worse outcomes compared to another group, and an evaluation of the impact and the root cause,
- an overview of the actions taken to address any risks or issues, and
- how the firm’s future business strategy is consistent with acting to deliver good outcomes under the Duty.[8]
At least annually, the board must:
- review and approve the firm’s report on the outcomes being received by retail customers,
- confirm whether it is satisfied that the firm is complying with its obligations under the Consumer Duty, and
- assess whether the firm’s future business strategy is consistent with its obligations under the Consumer Duty.[9]
When approving (and before signing off on) the report, the board must agree the action(s) required to address any identified risks, or any action required(s) to address poor outcomes experienced by customers and agree whether any changes to the firm’s future business strategy are required.[10]
The annual board assessment will be part of the evidence used by the FCA to assess compliance with the Consumer Duty. The FCA expects that it will be provided on request together with the management information (MI) that sits behind it.[11]
Consumer Duty Champion
The FCA expects firms to have a champion at board (or equivalent governing body) level who, along with the Chair and the CEO, ensures that the Consumer Duty is being discussed regularly and raised in all relevant discussions. Where possible, the champion should be an Independent Non-Executive Director (NED). For larger organisations with group structures, the FCA expects this champion to be at an appropriate level to ensure that the Duty is discussed in a meaningful way. However, as with all things related to the Consumer Duty, this expectation applies only to the extent that is “reasonable”. As such, the FCA does not necessarily expect the same level of formality in smaller firms.[12]
Next time
Next time, we’ll be turning our attention to look at the extent to which the Consumer Duty has retrospective effect, so stay tuned!
[1] FG22/5, 10.8
[2] Policy Statement PS22/9, 12.11
[3] Policy Statement PS22/9, 12.6
[4] Policy Statement PS22/9, 13.13
[5] PRIN 2A.8.3; FG22/5, 11.5
[6] Policy Statement PS22/9, 13.13
[7] FG22/5, 10.11; Policy Statement PS22/9, 13.2
[8] FG22/5, 10.12
[9] PRIN 2A.8.4
[10] FG22/5, 10.13; PRIN 2A.8.5
[11] FG22/5, 10.14
[12] FG22/5, 10.10
