The FCA’s intention to create a regime where “firms compete vigorously in the interests of consumers" continues unabated. Although the implementation date has been extended and phased and new milestones introduced, the content is fundamentally unchanged.

Following two consultations, the FCA has now published its final rules on Consumer Duty signalling the start of a hectic implementation period for firms.

Key messages from the final rules on Consumer Duty

• The implementation period has been extended by three months giving firms a twelve rather than nine-month implementation period (for current products). Therefore, firms will need to implement changes by end of July 2023.
• Recognising the additional complexity and challenges of applying the Duty to legacy products, firms have been given a further twelve months to implement the Duty on any closed book products (or stopped services) - i.e. to end of July 2024.
• Despite the extension and phasing, the FCA has made it essential for firms to focus on implementation immediately by expecting boards to have scrutinised and agreed implementation plans by October 2022, to ensure they are deliverable and robust.
• The FCA has made numerous amendments to the underlying rules to improve clarity and remove unintended consequences. For example, it has amended the rules to exclude primarily wholesale instruments from the scope of the Duty.
• All non-Handbook guidance has been formally captured and published as Finalised Guidance (FG22/5). This includes additional clarifications relating to key topics such as how to apply the duty’s scope to different types of customers, relationships between manufacturers and distributors, the role of the board, and developing a fair value framework.
• Finally, the FCA has set out its intended approach to the Duty, including generating awareness, its approach to authorisations and, importantly, its supervisory and enforcement strategy.

It is no great surprise that the FCA has not made any significant changes to the substance of the Consumer Duty following its second consultation.

Following an unprecedented level of industry engagement and feedback, the FCA maintains its commitment to all core elements and intention of the Consumer Duty but has showed that it was listening by making several changes to the rules as well as providing additional guidance.

Implementation timeframe

 The FCA has listened to the feedback about the challenging implementation period and has confirmed a twelve-month implementation period. This gives firms until 31 July 2023 to make the required changes. This is a pragmatic approach — the FCA is still intent on introducing its ‘step change’ as soon as possible but recognises the additional complexity and challenges of applying the duty to closed products.

FCA expectations during the implementation

The FCA has set out its expectations for actions that firms should take during the implementation period. In an unprecedented move, these include milestones for when it expects firms to have finished planning their implementation work, reviewing their existing open products and services and remedying issues identified to ensure they are fully compliant.

This is the first time the FCA has taken such an assertive approach, a move designed to reduce the risks and challenges. The most striking expectation is that, by the end of October 2022, firms’ boards should have scrutinised and agreed their implementation plans and be able to evidence that they are deliverable and robust.

Firms will be asked to share plans with the FCA and should expect to be challenged on them. This is a challenging timescale — especially as we’re in holiday season.

Finalised guidance

 The FCA has amalgamated the Consumer Duty non-Handbook guidance and formally captured it as Finalised Guidance (FG22/5).

It has also provided additional clarification on its expectations with examples and guidance relating to key topics such as how to apply the Duty’s scope to different types of customers, relationships between manufacturers and distributors, the role of the board, and developing a fair value framework.

Supervisory strategy

 The FCA plans to utilise its current portfolio approach (where it groups firms that share a common business model).

For each portfolio, the FCA will develop a strategy to embed the Duty and tackle key areas of harm — both across portfolios as well as portfolio-specific.

The FCA has also set out its plan to deliver a range of guidance work with, and for, firms including roundtables and webinars, regular communications and multi-firm supervisory work on high priority portfolios/ issues, and to develop a series of metrics to measure progress. Larger firms with named supervisors (fixed firms) can also expect that the FCA will request and regularly review implementation plans to assess progress.

The real work starts now. The FCA has listened and made some changes based on the feedback, though there is a lot of work for companies to do to clearly demonstrate they are ready.