In May 2021, the Financial Conduct Authority (FCA) announced a new consumer duty that will come into effect in 2023. This duty is aimed at ensuring that firms actively consider how their decisions and actions can best serve the interests of their customers. For those involved in risk management, auditing, and compliance, this new regulation could have significant implications. Let’s take a closer look at what to expect from this landmark change.
The Aim of the FCA’s Consumer Duty
The FCA’s consumer duty seeks to ensure that firms are considering their customer’s interests in all decision-making processes and activities. This regulation applies to firms providing services or products directly to consumers as well as those that provide products indirectly via intermediaries. In other words, it covers a wide range of organisations from banks and insurers to investment platforms and credit brokers.
What Will Change?
Under this new consumer duty, firms must have systems in place that enable them to assess how their activities impact on customers’ interests before they make decisions or take action. Although this isn’t a huge change—firms already need to consider customer outcomes when making decisions—it does mean an increased focus on consumer protection which should be welcomed by all involved in the sector.
In addition to having systems in place for assessing customer outcomes prior to decision-making processes, firms also need to ensure they have suitable systems for managing conflicts of interest between different parts of the business or between different customers—for example, between retail and institutional clients—in order for them to meet their obligations under the new regulation. Firms will also need to review existing contracts with intermediaries and establish clear lines of accountability around the supply chain where appropriate.
The FCA’s new consumer duty is set to come into effect in 2023 and will bring important changes for firms across all sectors of finance. By introducing greater transparency around customer outcomes and strengthening procedures for managing potential conflicts of interest between different parts of organizations or different customers, this landmark change can only be seen as good news for risk managers, auditors, compliance managers and everyone else involved in financial services who has been working hard towards improved standards over the past few years. It is hoped that these changes will result in fairer outcomes for consumers across all areas of finance.
Are you interested in learning more about how your team can manage upcoming regulatory change? Check out Connected Risk: Regulatory Change Management and book a free demo with one of our solution experts today!