Out-Law / Your Daily Need-To-Know

Out-Law Analysis 5 min. read

The imminent Consumer Duty and the FCA’s priorities

Regulated financial firms in the UK have less than one month until the deadline for implementing the Consumer Duty for open products.

As Sheldon Mills, executive director of the Financial Conduct Authority’s (FCA) consumers and competition division, recently highlighted, the regulator will be looking to act swiftly and assertively under the Duty when it finds evidence of harm or risk of harm to consumers. As the 31 July implementation deadline approaches, these are the key areas that the FCA is expected to focus its supervisory approach on.

Culture and remuneration

Culture and remuneration remain key areas for the FCA’s strategy in relation to the Consumer Duty. The FCA has been clear throughout the implementation process that it expects firms to instil a consumer outcomes focused approach from the top down. Firms will be expected to show the regulator evidence that their culture, remuneration and incentive structures drive good outcomes for customers. Firms which fail to do this risk facing the full range of enforcement and supervisory tools, including skilled person reviews and investigations.

In a speech last week the FCA’s executive director of authorisations, Emily Shepperd, emphasised the FCA’s view that culture is a key driver of conduct - and that the FCA’s Consumer Duty will encourage firms to pro-actively analyse their culture and how it affects their conduct. Shepperd says that firms should have effective governance arrangements in place to support a healthy culture. Firms at every stage of the regulatory lifecycle should expect to be asked to demonstrate to the FCA how their business model, the actions they have taken, and their culture are focused on delivering good customer outcomes.

Jackson Venetia

Venetia Jackson

Senior Associate

The FCA has persistently stated over the past year that it expects the Consumer Duty to be embedded from the top down. To support this, it expects boards to have appointed Consumer Duty champions

The FCA’s Consumer Duty guidance (121 pages / 1.13MB PDF) expands on what the regulator considers to be ‘good’ in the context of the Duty. It makes clear that there are four drivers of good culture: purpose, leadership, people and governance. The firm’s purpose should be consistent with the duty and staff should understand how it is relevant. Leaders should demonstrate commitment to delivering good outcomes for consumers, which should be reflected in performance and reward structures. Firms should be able to identify where they are not delivering good outcomes and mitigate this.

The FCA’s decision late last year against Mohammad Prodhan, former chief executive officer of Sonali Bank, exemplifies the dangers of poor culture – although it came prior to the Duty coming into force. Prodhan failed to take reasonable steps to assess and mitigate the risks arising from a culture of non-compliance among Sonali Bank’s staff between 2012 and 2014. As a result, staff members did not appreciate the need to comply with UK anti-money laundering (AML) requirements, and the money laundering reporting officer (MLRO) role was ineffective in monitoring AML compliance. This led to systemic control failures throughout the business.

The best way to avoid the risks of expense, reputational damage and business disruption caused by investigations lasting years, like the Prodhan case, is to ensure that chief executives, boards and audit, compliance and remuneration committees take a proactive approach to embedding a culture of compliance. The FCA has persistently stated over the past year that it expects the Consumer Duty to be embedded from the top down. To support this, it expects boards to have appointed Consumer Duty champions. These individuals, along with internal risk and audit arrangements, will have a vital role both in the actual challenge they deliver in board discussions and in demonstrating to the FCA the embedding of the Duty throughout the firm.

A new rule in the Consumer Duty requires firms to competently, diligently and impartially investigate any circumstances that lead to foreseeable harm. They must obtain additional information as necessary, and consider appropriate redress or remediation. This is a significant advancement on the existing complaints handling obligation in the FCA’s handbook, known as ‘DISP 1.3.6G’, because the PRIN 2A obligation is not confined to systemic issues and is not triggered by complaints. Firms need to be aware of what their monitoring is telling them and be prepared to proactively take action should any issues be identified.

The FCA’s supervisory approach

The FCA has already published a series of podcasts, speeches, reviews of key tasks and portfolio and sector letters aimed at ensuring firms understand the requirements of the Duty and the regulator’s expectations. This is a novel approach to implementation of new regulations and has been particularly welcome given the magnitude of the change being implemented. Firms that have paid close attention to the FCA’s statements are likely to find themselves in a better position to address any supervisory questions that might come their way after 31 July.

The FCA has been at pains to emphasise that, in line with its general approach of being an assertive regulator, it will be prioritising the most serious breaches and taking swift action where it finds evidence of harm or risk of harm to consumers. The Duty is a new and major piece of consumer-focused regulation from the FCA.  We expect to see the regulator pro-actively asking questions of firms from 1 August around their implementation.

We also expect to see the FCA moving swiftly to use its powers, including voluntary requirements (VREQs) and imposed own-initiative requirements (OIREQs) as appropriate when it receives information indicating harm has occurred. Firms can best prepare for the FCA’s supervision by ensuring that they are collecting and retaining the data they need to evidence good outcomes and that they are maintaining good records of the decisions they take that are relevant to consumer outcomes.

The Duty emphasises the importance of pro-active monitoring and action by firms, and continued FCA encouragement of this approach was seen in a recent speech given by Therese Chambers. Chambers made clear that the FCA views ‘doing the right thing’ as being at the heart of the Duty and we expect to see the FCA taking this through into its supervisory approach.

Cavill Jonathan

Jonathan Cavill


We have already seen the FCA flexing the need to comply with the Duty in its regulatory communications with firms

Firms should also pay close attention to Shepperd’s speech in which she stated that culture remains central to the FCA’s supervisory model; it underpins outcomes, conduct, business performance and confidence.  The FCA expects firms to embed a culture where good outcomes are central. Shepperd outlined concerns the FCA has around regulatory references and further stated that the FCA’s view is that the best predictor of future behaviour is past behaviour.  When combined with the FCA’s comments accompanying the publication of their consumer duty firm survey results, firms can expect that where the FCA investigates implementation, senior manager conduct will also be a focus area.

The FCA has a large number of tools available to it, from simple requests from supervisors for information, through to the ability to compel the provision of information, launch intensive reviews into firms and ultimately compel action where it considers firms have not been ‘doing the right thing’ under its rules. It has already committed in its original policy statement to use its full range of powers where it identifies serious misconduct. 

We have already seen the FCA flexing the need to comply with the Duty in its regulatory communications with firms. In May the FCA issued a letter to self-invested personal pension (SIPP) providers (8-page / 172KB PDF) emphasising how the regulator sees the Duty applying to SIPPs and the heightened requirements it places on SIPP providers. This proactive approach to a sector that has seen a lot of regulatory focus and in relation to which the FCA regularly expresses concerns around firm failure and consumer redress is one that we expect to see replicated across other sectors the FCA considers to be higher risk.

The importance of the Financial Ombudsman Service (FOS) must also not be underestimated. After 31 July 2023, consumers will be able to bring complaints to the FOS in relation to breaches of the Duty. While we would not expect to see complaints brought immediately given the requirement that firms are able to consider a complaint first, it is encouraging that the FCA continues to reference its ongoing liaison with the FOS around the Duty. It is to be hoped that this will result in an approach consistent with the FCA’s publications to date when the FOS does start looking at Duty complaints.

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