On 27 July 2022 the FCA set out its final rules and guidance for a new Consumer Duty, which consists of a new Consumer Principle that requires firms to act to deliver good outcomes for retail customers; with cross-cutting rules requiring firms to act in good faith, avoid causing foreseeable harm, and enabling and supporting retail customers to pursue their financial objectives in order to achieve four set outcomes:
- Products and services are fit for purposes
- Products and services represent fair value
- Customers are equipped to make informed decisions
- Customers receive adequate support to meet their needs.
In this article, we look at the role HR and People teams can play in supporting the Board and Senior Managers to ensure those goals are achieved.
The cornerstone of the duty is setting a higher standard and ensuring consumers are put first, with firms expected to consider the needs, characteristics and objectives of their customers and how they behave at each stage of their journey. In addition to delivering good customer outcomes, firms will be required to understand and evidence whether the outcomes set out in the Consumer Duty are being met.
While the Consumer Duty is an outward facing one, the FCA is expecting firms to put delivering good outcomes at the heart of their strategy and business objectives. Promoting the right culture will be key, with the FCA expecting a firm’s purpose, leadership, people and governance to all come together to deliver good outcomes for customers.
What can HR do to support the implementation?
Firms are required to produce an ‘Implementation Plan’ by end of October 2022 which sets out in detail how they plan to implement the Consumer Duty by 31 July 2023 (for new and existing products and services) and by 31 July 2024 (for closed products).
Implementation plans should clearly set out how appropriate governance structures will be put in place, how the Consumer Duty will be embedded in day-to-day operations, and how change will be driven both from the top-down and bottom-up.
Firms should be prepared to share their implementation plans, board papers and minutes with their FCA supervisors and be challenged on their contents. They will be expected to evidence that these plans have been challenged and scrutinised to ensure they are sufficiently robust.
HR and People teams play a key role in supporting the Board and Senior Managers to ensure those goals are achieved. Key steps should include:
- Appointing a “Consumer Duty Champion” on the Board or a firm’s equivalent body. This should ideally be an independent non-executive director who is responsible along with the Chair and CEO to ensure that the Consumer Duty is raised in all relevant discussions. The FCA has produced a list of “Key Questions” with regards to culture, governance and customer outcomes with the expectation that these are used to guide discussions at Board/Senior level.
- For firms subject to the Senior Management & Certification Regime (SMCR):
- Reviewing SMCR framework changes to ensure that responsibility for the Consumer Duty is appropriately embedded within all roles and responsibilities – that will include reviewing Job descriptions, Statement of Responsibilities and the Management Responsibilities Map;
- Ensuring individuals for approval are familiar with the Consumer Duty and how they are responsible for it within the remit of their role – the FCA has confirmed it will consider the evidence of individuals’ understanding of and actions taken to comply with the Consumer Duty, when considering individuals for approval;
- Ensuring that staff are aware of the new Individual Conduct Rule 6 which requires staff to “act to deliver good outcomes for retail customers” and how it applies to their role. The FCA has explained that this rule will apply to the extent it is reasonable and proportionate; the more senior a person and the more relevant their role is to the Consumer Duty, the more the FCA will expect from them in terms of delivering outcomes.
For all firms, regardless of whether they are subject to the SMCR:
- Consider how a firm’s purpose helps deliver good outcomes.
- Ensure senior management are adequately trained - even where a firm is not subject to the SMCR, the FCA nonetheless expects there to be senior management oversight and accountability for the Consumer Duty, who will be responsible for ensuring their ensure their staff act in accordance with the requirements of the Consumer Duty.
- Roll out training to ensure staff are aware of what the Consumer Duty means, why it is relevant to their role, how they should deliver good outcomes for customers, and how the firm’s purpose – whether articulated publicly or not – helps it deliver good outcomes.
- Review HR policies – do staff have a clear avenue to raise concerns if they feel the firm is not delivering good outcomes? Consider whether compliance requires a new policy or whether existing policies can be updated to: (i) ensure staff feel able and comfortable to raise issues and there is a mechanism in place to ensure those issues are picked up and addressed by management; and (ii) ensure staff understand the consequences of not complying with Consumer Duty.
- Review job descriptions of relevant staff – is compliance with the Consumer Duty embedded within them; whether in the description, requirements or objectives/key achievable targets of the role?
- Re-visit staff incentives, performance management and remuneration structures – are they designed to be consistent with ensuring good outcomes for customers? How is compliance and the delivery of good outcomes for consumers encouraged in the firm’s remuneration / bonus structure or otherwise? Consider how to reward compliance and ensure appraisal forms and annual discussions around careers and pay rises include consideration of the Consumer Duty.
- Encourage ownership for compliance – while the crux of the responsibility lies with the Board and Senior Managers, the FCA expects compliance to be encouraged at all levels and for change to be bottom-up and top-down. Consumer Duty considerations should be integrated within firm Away Days and other Strategy Events.
- Incorporate regular reviews of the issues above and monitor the impact of changes.
For more information about the new Consumer Duty, please see our previous Insight The new Consumer Duty: what impact might it have on firms and their insurers?