FCA review talks of Consumer Duty ‘complacency’ – Mortgage Strategy

In late January the Financial Conduct Authority issued a multi-firm review, with one of its conclusions being that some firms might struggle to enact the new Consumer Duty rules. There are just six months left before the deadline.

The review is lengthy and, dictated by the large number of sectors it has to cover, extremely broad. There is, however, an obvious sense of urgency throughout.

Several themes of concern to the regulator appear repeatedly within the six categories covered by the report — these categories being: governance and oversight; culture and people; deliverability; third parties; the four outcomes; and data strategies.

While the FCA hasn’t been overly prescriptive, this should not be confused with a lack of certainty

The FCA specifies three overall areas it wants to see firms focus on: effective prioritisation; embedding the substantive requirements; and working with other firms.

And, as MorganAsh managing director Andrew Gething comments: “The report… highlights weak implementation plans, a lack of engagement with senior leaders and a shortfall in adopting new technology.

“The overarching goal,” he continues, “of achieving good customer outcomes has created an air of complacency among some firms who believe this is something they already achieve.”

He adds: “Unfortunately… there are still folk who disagree with the Consumer Duty, don’t want to change and think this is more red tape that serves no purpose. While we have not seen many implementation plans, some are clearly just providing lip service.”

If you are worried you have gaps, employ the services of an expert and make sure those gaps are filled

In fact, the FCA’s report itself states: “We saw some plans that suggested firms may have considered the requirements superficially, or are over-confident that their existing policies and processes will be adequate.”

At a recent conference hosted by the Personal Investment Management & Financial Advice Association, FCA director of consumer investments Therese Chambers said it was important not to regard the new rules as a “re-expression of Treating Customers Fairly”, and in fact the Consumer Duty was a “step change” that aimed to create a “fundamental change in behaviour” at firms.

Chambers warned that some plans the regulator had reviewed were overly simplistic and optimistic about the firm’s ability to comply with the rules.

From the brokers Mortgage Strategy spoke to, this attitude appears to be less prevalent in the mortgage industry.

This could push more directly authorised firms towards the network model

“I think everyone is taking it very seriously and in some cases is concerned about ensuring they are deploying enough resources to the project internally, given the perceived magnitude of the changes,” says Aria Finance managing director Lucy Barrett.

She adds: “The FCA has always said it tries to be proportionate when it comes to its approach, and I think that will still apply, to an extent.

“However, the reality is it wants to keep raising the bar and professionalism of the market. It’s a good thing for market standards to expect everyone to participate in new regulatory standards, and reasonable to make each and every firm subscribe to the same set of standards and for the monitoring thereafter to be proportionate.

The report… highlights weak implementation plans, a lack of engagement with senior leaders and a shortfall in adopting new technology

“It could push more directly authorised firms towards the network model as it will be a lot of work for individual intermediaries without any support.”

The wide scope of the work involved is reiterated by Furnley House co-founder and senior adviser Kevin Dunn, who says: “We have certainly found that implementation has needed a significant amount of time allocated to it, which was perhaps more than originally anticipated.”

And, when asked if he has any advice for other firms the size of his, Dunn replies: “I would urge them not to underestimate the work involved. This is not something you will be able to properly embed without sufficient time and thought being invested.”

Some firms are clearly just providing lip service

And the regulator is watching closely. Quilter head of proposition specialists Roddy Munro comments: “While the FCA hasn’t been overly prescriptive in what it is expecting, this should not be confused with a lack of certainty from the regulator. Indeed, detail and accountability are key.”

He adds: “The regulator has flagged… that you must be clear about who is leading the programme, with clear timelines and information on how the duty will be embedded within company culture.”

It is the lack of a ‘Consumer Duty champion’ at a senior level that the report bemoans several times throughout its text.

“This champion role is to support the chair [or equivalent level] and chief executive in raising the duty in all relevant discussions, and to challenge the firm’s management on how it is embedding the duty and focusing on consumer outcomes,” says the FCA.

I urge other firms not to underestimate the work involved

The 31 July deadline to have the Consumer Duty fully up and running is fast approaching.

“If you are worried you have gaps, it’s time to employ the services of an expert and make sure those gaps are filled,” says Barrett.

“Don’t be afraid to reach out for help, even if there is a cost burden, because you will face a potentially higher cost burden for not being diligent,” she warns.

This article featured in the February 2023 edition of MS.

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