The end of July, as most of us will be aware, marks the first anniversary of the regulator’s Consumer Duty rules.
It’s a significant milestone, not least for the FCA which recently announced a special One Year On webinar to take place on 31 July to mark the occasion.
The focus I expect will be on lessons learned over the past 12 months and on some of the steps that have been taken across the industry to drive good consumer outcomes.
The date is not only a landmark for the regulator, it’s also the deadline for providers and adviser firms to have their first Consumer Duty Annual Board Reports ready.
The importance of this first Annual Report cannot be overstated. Not only is it a mandatory obligation and should show how firms are embedding the rules into their culture, it will also be a core reference document for firms in the years to come as the Consumer Duty regime and processes evolve.
It’s clear the rules have already had a substantial impact on the advice sector. As the lang cat consultancy recently highlighted at the launch of its Advice Gap 2024 report, firms have rigorously reviewed processes, tightened up target markets and delivered even better client satisfaction as part of meeting their Consumer Duty obligations.
This Consumer Duty milestone marks the start of a journey for the industry, where delivering good outcomes will be guided by a more proactive regulator, and where new opportunities can be regularly identified to enhance adviser businesses.
The thinking behind the Consumer Duty Annual Board Report
One of the long-term benefits of the rules is that they’ve forced the industry to take the time to think, to refine products and services, and to work out how to meet the higher expectations the Consumer Duty demands.
The work required for the Consumer Duty Annual Board Report shouldn’t be any different. The trick is to make the time spent meaningful. The opportunity to be able to check processes are working and identify where improvements can be made should help to drive higher standards across the industry, and potentially greater efficiencies within adviser firms.
With the deadline fast approaching, many adviser firms will have already completed drafts of their first Report. It’s important, I think, to point out that although producing an Annual Board Report is a regulatory responsibility, there’s no need for this first iteration to be perfect. The FCA is anticipating Reports to highlight either where further changes will be made, or where more work is planned over the next 12 months to identify where improvements can be investigated.
I know from my own experience and conversations with firms that implementing some parts of the Consumer Duty has been a challenge. But that’s OK. Meeting the regulator’s expectations last year was not a simple process. However, it should get easier over time as firms build on the work that’s already been done.
For its part, over the past 12 months, the FCA has published regular guidance and shared good and poor practice across all sectors to support firms with the rules, including a Dear CEO letter to advice firms alongside its thematic review of retirement income advice. I expect the regulator to continue to share examples as part of its new approach as a more interventionalist, data-driven organisation to drive change.
Identifying opportunities to enhance your business
The regulator has been clear about what it expects to see in the Annual Board Report, with evidence that firms have paused, reflected, and taken action where it’s needed. The Report, the FCA says, should include:
- results of monitoring undertaken to assess whether products and services are delivering expected outcomes
- 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 root cause
- overview of the actions taken to address any risks or issues identified above
- how the firm’s future business strategy is consistent with acting to deliver good outcomes.
A good starting point for any firm still thinking about how to pull together its Report would be to review the MI gathered in advance of the Consumer Duty deadline last year and checking it’s still valid. I’d also recommend splitting the Report between the four Consumer Duty outcomes (product and services, price and value, consumer understanding and consumer support), and mapping your firm’s actions over the past 12 months back to them. This should help to identify new opportunities for improvement within your business.
As much of the evidence required for the Report should already be documented, I’d also suggest to:
- Carefully consider what your business has learnt over the past 12 months, include these learnings and take any action that will enhance your processes and client outcomes.
- Define what good looks like in your business and make sure that is taken into account across processes and MI.
- Take note of all actions your firm has taken over the past 12 months to achieve better outcomes for clients.
- Look to assess the four Consumer Duty outcomes at a more granular level within the Report. For example, how your firm has taken steps to improve your written communications to clients.
- Ensure that all key stakeholders across your business are helping to identify opportunities that will create more efficiencies and improve processes.
Doing the right thing for clients
Post the July 31 deadline, the FCA says it will review a broad sample of Reports and will publish insights to help to continue to drive good practice.
And as the FCA’s One Year On webinar should highlight, most advisers are already doing the right thing for clients, and the Report gives firms the opportunity to demonstrate this to the regulator.
Looking to the future, I expect producing the Annual Report to get into more of a rhythm, helping to not only engage everyone across our industry but to ensure the Consumer Duty becomes part of the culture.
See the FCA’s finalised guidance FG22/5 and for more support with the Consumer Duty, go to our Support Hub.
The views expressed in this blog should not be regarded as financial advice.