Briefing: Consumer Duty is flagship for assertive FCA

By Editor Katie Scott

As the second consultation for the FCA’s proposed Consumer Duty nears its close (15 February 2022), Sicsic Advisory senior advisor Hugh Savill has warned that this piece of work should act as a guide for the insurance industry on how the FCA plans to follow through on its July 2021 business plan commitment to be “tough”, “assertive” and a “proactive regulator”.

Initially launched in May 2021, the recommended Consumer Duty aims to enhance consumer protection for retail financial market customers and ensure consumers achieve good outcomes.

Through this new principle, the regulator plans to “drive a shift in culture and behaviour for firms, meaning that consumers always get products and services that are fit for purpose, that represent fair value and are clearly communicated and understandable”.

It believes this will “will help, rather than hinder, consumers to make good choices and be confident that they will receive good customer service”.

Speaking at a media briefing hosted online by Sicsic Advisory this month (February 2022), Savill noted that the FCA’s new focus on customer outcomes and its cross-cutting rule about supporting retail customers to pursue their financial objectives are very broad, taking “the rules further than we’ve seen [the FCA] go before”.

The “FCA is going through a major change programme,” he added.

Mistake to delay

Discussing the implementation timeline for the Consumer Duty regulations, Savill told online attendees that the rules are not due to be finalised until July this year. These will then come into force from April 2023.

However, firms cannot afford to wait until the summer before starting to explore what the new Consumer Duty will mean for them, Savill warned.

He said: “My assumption is that quite a lot of regulated companies have currently put it on a shelf and will look at it in July this year. I think that would be a mistake.

“Firstly, that will leave them without enough time to do what they’ve got to do and secondly, this is almost certainly the best way to understand what the new assertive FCA looks like.”

Understanding Consumer Duty could also be more time-consuming than first expected due to the “deliberate” lack of guidance from the regulator, Savill continued – he added that the FCA wants firms to work out for themselves how they will adhere to the new Consumer Duty principle and that it also expects to see action from regulated firms during the implementation period itself.

Work around this judgement-based regulation will require entire organisations to band together, rather than just compliance functions ticking boxes, Savill recommended - especially as there are bound to be “commercial consequences”.

Regulator resources

Although firms will undoubtedly need to knuckle down to bring Consumer Duty to fruition, so too will the FCA – Savill noted that the regulator has set itself a huge amount of work to do. He questioned whether it would, in fact, have the resources to achieve its own ambitions here.

It is certainly pertinent timing to be querying the FCA’s resources, as last month FCA employees who are members of the trade union Unite participated in a vote to determine whether they will undertake strike action over slashed employee bonuses.

And let’s not forget the “high profile” general insurance pricing reform changes too, which were discussed by Sicsic Advisory associate director Nindy Mellett in the briefing session.

She added that these changes, which came into effect from 1 January 2022, require a lot of oversight from the FCA – especially around attestations, which Mellett described as a “step change” for the regulator.

Attestations will need to be completed by firms’ senior management from March 2022, demonstrating compliance with the new rules. This means that the FCA will need to review a huge number of attestations, which will all be hitting the regulator in the same time window.

Mellett noted that this will impact the FCA’s bandwidth, however the regular has apparently said it plans to increase its resources to accommodate the expected flood of attestations.

Speaking more broadly on the pricing changes, Mellett said that engagement from firms so far has been patchy and that better communications between companies is still needed to improve the flow of information.

Beyond a tick box exercise

Another regulatory area larger brokers need to be aware of is operational resilience, noted James Maxwell, partner at Sicsic Advisory. In terms of the FCA’s remit, reviewing the operational resilience of brokers with a revenue above £35m comes within its scope, Maxwell explained.

He continued: “Intermediaries are probably a little bit behind insurers in terms of their levels of preparedness.

“The regulator is thinking about operational resilience as a key element of [its] supervisory strategy for large brokers in 2022 and 2023, so there’s some ground to be made up and that will be a focus.”

Meanwhile, Michael Sicsic, Sicsic Advisory’s managing director, described 2022 as the year of “regulatory engagement”.

He said: “What we see is a high and continuous level of regulatory change and this year, we will be moving into implementation and embedding. There has been a lot of new requirements coming in 2021 and 2022, some new initiatives, but [mostly this year will be the] embedding and implementation of [last year’s] initiatives.

“We see [this] as [a] strategic challenge that will transform business models, beyond just [a] compliance tick box.”

Sicsic additionally labelled the FCA as “data hungry”, however he noted that the “jury was out” on how the regulator planned to use the data it collected and what this will mean for firms in practice.

Escalating regulatory requirements have been a thorn in the side of many brokers’ operations over the last year or so, however it does not look as if there will be any let up in the near future.