In a bid to improve the treatment of clients at the hands of the financial industry, regulators in the U.K. are introducing a new “consumer duty” on firms that takes effect in July. However, a pre-implementation review of firms’ preparations finds that some may not be ready to meet the new standards.
On July 31, a new conduct standard takes effect that the Financial Conduct Authority (FCA) calls the “cornerstone” of a major effort to elevate customer treatment and reduce the risk of harm.
With six months to go until the new duty comes into force, the FCA published the results of a review of firms’ readiness to meet the new standard for new products — firms have until July 2024 to implement the new standard for existing products.
That review found that, while some firms have undertaken extensive preparations, others “are further behind in their planning,” and may struggle to apply the new standard when it takes effect.
“The consumer duty will bring about a step change in the way financial services firms treat their customers and we welcome the work firms are doing to implement it. Given the scale of the reform, we recognize that some firms need to make significant changes,” said Sheldon Mills, executive director of consumers and competition at the FCA, in a release.
“For firms which are further behind in making the necessary changes, there is time to put that right and for them to show they are acting in the spirit of the new duty,” he said.
To that end, the regulator called on firms to use the remainder of the implementation period to prioritize the areas that will have the biggest impact on consumer outcomes, and to adopt the changes needed to meet the new standards.
Among other things, the review found some firms had implementation plans “that suggested firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate.”
“Firms should ensure that, when they are reviewing their products and services, communications and customer journeys, they identify and make the changes needed to meet the new standards,” the report said.
In particular, it called on firms to ensure that they are coordinating work with all of their industry partners to improve customers’ outcomes.
“The FCA has found that some firms need to accelerate this work to implement the duty on time,” it said.
Once the duty is fully implemented, firms will see benefits too, Mills noted, “with increased trust in the sector, more flexibility to innovate and in time fewer rule changes.”