The new FCA Consumer Duty (Duty) will come into force on 31 July 2023. The Financial Conduct Authority FCA intend the new Duty to increase levels of consumer protection in retail financial services markets whilst aiming to increase competition and promote a healthy environment for firms to thrive. Although the FCA believe there is good behavioural and cultural practices within firms they do not believe this is consistent and sufficiently prioritised to ensure consumers always get the best outcomes. The new Duty will not be a tick-box exercise or be about introducing new process and paperwork but about cultural in change within FCA regulated firms. This means that motor retailers need to take action now to ensure they are compliant with the new Duty.

What is the Consumer Duty

The Consumer Duty will be made up of three elements:

  • A new FCA Principle
  • 3 Cross Cutting Rules
  • 4 Consumer Outcomes

The new FCA Principle

The FCA currently has 11 Principles that act as an overriding framework for how firms should behave and operate in the financial services market. Many of you will be already familiar with FCA Principle 6 that states - 'A firm must pay due regard to the interests of its customers and treat them fairly'. There are other principles that talk about integrity and acting with due diligence.

The Consumer Duty will add a new 12th Principle which will read – ‘A Consumer must act to deliver good outcomes for retail customers’.

Cross Cutting Rules

To support the Principle there will be 3 broad Cross cutting rules:

  1. 1. Take reasonable steps to avoid causing foreseeable harm to customers
  2. 2. Take reasonable steps to enable customers to pursue their financial objectives
  3. 3. Act in good faith

These rules are very broad and high level. The rules do not dictate exactly how a firm should comply with the rules and instead allows them to decide how best to achieve this by taking reasonable steps.

Consumer Outcomes

The aim of the Consumer Duty is to ensure consumers receive good outcomes when acquiring a financial service and receive the right level of support and information during the whole customer journey. The 4 Outcomes are

  1. 1. Products and Service
  2. 2. Price and Value
  3. 3. Customer Understanding
  4. 4. Customer Support

What does the Duty mean for Motor Retailers?

The Consumer Duty is about cultural change in firms that puts the customer at the heart of the business. It will build on the existing ‘Treating Customers Fairly’ Principle, but it will be far more wide reaching and encompassing. The cross-cutting rules are high level and not specific, allowing for interpretation and flexibility in how individual firms implement them. The focus will be on what an individual customer needs and wants. It will be about ensuring that: -

  • the products you sell are fit for purpose and meets their needs.
  • customers have all the information they need, in a format they can understand and digest, to make an informed decision when buying a financial product.
  • Customers believe the product they are buying are good value and at a fair price for them
  • Customers have free access to good support before, during and after their purchase

The Consumer Duty will require a new approach to how you do business and FCA compliance. The Consumer Duty will not be about filling out boxes or having new documentation, though you might require updating some of this to help you meet the requirements. The Fair Value Outcome is also not about price caps or a race to the bottom on price.

The Consumer Duty will require you to evidence that your customers are receiving good outcomes and you are taking steps to achieve this. It will also require you to: - detail your negations with lenders and insurers about product design and suitability; ensure your deal files are completed showing that customers have received and understood the information you have given them; and to document your reasoning for your pricing structures. Staff training will also be key to ensure that they have the skills to ensure they are delivering what the Duty requires and consumers need.

Implementation

The first stage of implementing the Consumer Duty will be for regulated firms to develop an Implementation plan for their business. This will need to be prepared by the end of October 2023.

The Implementation plan should outline the steps you and your firm need to follow to ensure that the Consumer Duty in fully implemented on time. It will ensure that you know what needs to be done, how it this will happen, who is doing it and by when. Below is an outline and some pointers on how to develop a plan and what needs to be included.

  1. Keeping track of your plan

It is important that your plan is easy to read, understand and most importantly usable. To ensure that you are working of the correct copy you need to ensure that you date it and allocate it a version number each time it is updated. It is also good practice to note why any changes have been made to the plan and by whom.

  1. Introduction

The plan needs to have an introduction outlining: -

  1. Purpose and Scope – including a noting the elements of the Consumer Duty i.e.:
    1. Definition of Principle (PRIN) 12
  2. Cross-Cutting Rules
  3. 4 Outcomes
  4. Assumptions – the plan will need to detail any assumptions you have made to be able to deliver the plan such as: -
    1. Budget
  5. Resources
  6. Software
  1. Management Overview

The plan will need to outline how the project will be managed and will need: -

  1. Description of Implementation - how will the implementation be rolled out and timeframe for each element of it.
  2. Determine resource required to deliver the project and identify: -
    1. who will be in overall charge of the project
  3. who will be responsible for each element of the project
  4. what resource is available and any additionl resources you may require
  5. Key Points of Contact, you can create a table with key contacts, their Job titles and responsibilities.
  6. Key Cross Overs - detail where the Duty crosses over with other elements of the FCA regime and how the Duty will impact them in terms of other FCA rules and requirements such as CONC.
    1. SM&CR
  7. Vulnerable Customers
  8. General Insurance (GI) – Fair Value in the Distribution Chain
  9. Identify any risks to the project and how you would mitigate them
  1. Implementation Requirements

You will need to identify the key areas of your business that will be affected by the Duty and need to be part of the Implementation programme. This will include identifying your products, detailing your process and reviewing your Governance. You will need to include the following in the plan: -

  1. Products
    1. What regulated Products you currently offer and their supplier
  2. Position – you will need to determine if you are not just the distributor but the manufacturer of that product, and if not, who is.
  3. Processes
    1. Details your sales process looking at each stage of the process - before, during and after the sales. This should include the paperwork provided, the content and what medium it is given in. Adverts and promotional materials should also be reviewed.
  4. All the process should be reviewed, tested and adapted for their compliance to the Duty. You should also detail in the plan your approach for doing this.
  5. Governance
    1. How you will monitor compliance on an on-going basis and the expectation that will be placed on staff and senior managers.
      1. What will be expected from whom
    2. How often it will be required
    3. In what format (for example, Face to Face quarterly, MI supplies monthly)
    4. Identify potential Risks and what Action would be taken
    5. Gap Analysis should be carried out to identify where the firm does not already meet the standards of the Duty and what would be required to make it compliant.
    6. Systems

What systems will need to update to meet the Duty, for example, CRM and DMS

  1. Implementation Support

Implementation of the Consumer Duty will have a significant impact on staff and will require: -

  1. Identifying all staff that will be affected by the Consumer Duty
  2. Reviewing and changing HR Documentation including: -
    1. Job Description Change
  3. HR Policies
  4. Training Staff
  1. Project Plan Approval

The FCA require the Implementation plan to be reviewed and signed off at Board level.