The regulator has extended its implementation timeline for its ‘step change’ Consumer Duty principle by three months, but company boards must agree their implementation strategies by October 2022

The FCA has today (27 July 2022) published its final rules for its Consumer Duty regulation - it believes this new principle will lead to a “major shift in financial services” and “promote competition and growth based on high standards”.

The Consumer Duty principle was originally announced by the FCA in May 2021 via a consultation. It requires firms to review their products and services against a new standard of fairness.

Through this piece of regulation, the FCA plans to create new requirements for insurance and other financial organisations to ensure positive customer outcomes across four metrics – these include products and services, fair price and value, consumer understanding and consumer support.

In a statement, the FCA explained: “[Consumer Duty] is made up of an overarching principle and new rules firms will have to follow.

”It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value and get [the] customer support they need, when they need it.”

The regulator added that the Consumer Duty rules form part of its transformation into a “more assertive and data led regulator” and place the onus on insurance firms to assess and demonstrate that they were delivering good consumer outcomes.

Confirmed in the rules published today, the Consumer Duty regulation includes requirements for insurance firms to:

  • End “rip-off” charges and fees.
  • Make it as easy to switch or cancel products as it was to take them out in the first place.
  • Provide helpful and accessible customer support, not making people wait so long for an answer that they give up.
  • Provide timely and clear information about products and services that people can understand, rather than burying key information in lengthy terms and conditions - this will help consumers make good financial decisions.
  • Provide products and services that are right for customers.
  • Focus on the real and diverse needs of customers – including those in vulnerable circumstances – in each interaction.

Michael Sicsic, managing director of specialist financial services risk and regulation consultancy Sicsic Advisory, explained: “The FCA now expects firms to define, assess and evidence good outcomes. The good news is that [it has provided] extensive guidelines of expectations and what good looks like.

“This is a departure from current practice and shows a desire that fewer rules will be required down the line.”

Implementation timeline

The FCA has confirmed that insurance companies will have 12 months to implement the new Consumer Duty rules for all new and existing products and services that are currently on sale – with a deadline of July 2023.

The regulator has also issued an additional 12 months of implementation time to apply the new standards to closed book products that are no longer on sale – a deadline of July 2024.

This implementation period provides a three month extension from previous FCA proposals for applying the regulation to on sale products, as well as an extra year for closed book products.

However, insurance firms’ boards will be required to have agreed on their implementation plans to comply with Consumer Duty by October 2022, leaving little time to prepare.

Sicsic said: “Today’s three-month deferral of the Consumer Duty ‘go live’ date may look at first glance like a boon – but it disguises a very tight deadline.

“Boards are charged with agreeing implementation planning by October and that means summer holidays are a bust for those doing the groundwork.”

Elisabeth Bremner, partner in the financial services regulatory team at law firm CMS, called the revised implementation period a “trojan horse”.

She said: “Driven by political pressure, [the FCA] has ignored industry concerns and given very little ground. [The extension] is completely undermined by a new aggressive deadline of October 2022 for boards to agree their implementation plans.

“Clearly out of step with the firms it regulates, the FCA even says that firms should implement more quickly if they can.”

Branko Bjelobaba, principal at compliance consultancy Branko, said that the Consumer Duty was “a lot of plain common sense” and that the general insurance sector “should not be struggling with these rules”.

He added: “With just over two months to go for the fair value assessments deadline – one of the core requirements of the new Consumer Duty – it is sad to see insurers being very slow to ask their brokers what they do.

“One broker I know well has over 80 agencies and couple of weeks ago, he had only had three insurers ask for relevant information so that they could assess product value. As this is a key part of Consumer Duty, I would encourage insurers to engage more readily.”

Public confidence

Matthew Connell, director of policy and public affairs at the Chartered Insurance Institute (CII) welcomed the FCA’s confirmation of Consumer Duty rules.

He said: “We welcome the confirmation from the FCA that consumers having strong confidence and levels of participation in markets is one of the key outcomes they are looking for from the Consumer Duty.

“No market can exist without the confidence of the public and it is important that we measure the key elements of confidence and trust in order to identify areas where changes are needed and where more regulation would be unnecessary.”

Connell added, however, that while the CII supported the FCA’s move to outcomes-based regulation, it understood firms’ concerns that this may leave some “with responsibilities for outcomes over which they do not have complete control”.

He explained: “The FCA needs to be specific about the kind of culture and mindset that it is looking for within firms so that it can treat firms that are looking for the right answer but have not yet found it differently from firms that are not interested in improving customers outcomes.

“The FCA’s model for customers in vulnerable circumstances – where it expects monitoring outcomes, analysing and learning from experience and testing and improving propositions as a result of the learning – is a good basis for this and should be given more prominence in the guidance.”

Jonathan Herbst, partner and global head of financial services regulation at law firm Norton Rose Fulbright, added: “The Consumer Duty represents a step change for firms in how they are expected to treat retail customers.

”These proposals are part of the FCA’s broader push to ensure that firms are proactively doing the ‘right thing’ for customers. It will be important for firms to interpret the overarching Consumer [Duty] principle and the accompanying rules and guidance within this context.

”Although it will take time to see the effect of these proposals on the market, it is clear at this stage that firms will need to undertake a thorough review of their current approach to retail customers.”