The Consumer Duty introduced by the Financial Conduct Authority (FCA) represents a significant shift in how financial services firms interact with their customers. This duty is designed to enhance consumer protection by setting higher and clearer standards for the financial services sector. Understanding which firms are required to comply with this new regulatory framework is crucial for ensuring adherence and avoiding potential legal repercussions. Here, we detail which firms must comply with the Consumer Duty and the implications for each sector.

1. Regulated Firms Under FCA Oversight

Mandatory Compliance for FCA-Regulated Entities

The Consumer Duty applies to all FCA-regulated firms. This includes a broad spectrum of financial services providers:

• Banks: Institutions that offer savings, loans, and other financial products.
• Insurance Companies: Firms providing life, health, property, and other types of insurance.
• Investment Firms: Entities engaged in managing investments or providing investment advice.
• Consumer Credit Businesses: Companies offering credit cards, personal loans, and other forms of credit.

These firms must adhere to the Consumer Duty’s standards, which are designed to ensure that retail customers receive fair treatment and good outcomes from financial products and services.

Focus on Retail Customers

The Consumer Duty is specifically aimed at interactions with retail customers. This means it does not apply to professional clients or eligible counterparties. Retail customers are individual consumers who use financial products for personal, family, or household purposes, rather than for business or commercial use.

2. Responsibilities of Financial Product Manufacturers

Manufacturer Obligations

The Consumer Duty extends beyond firms with direct customer relationships. Product manufacturers—those involved in creating or distributing financial products—are also required to comply. This includes:

• Product Developers: Firms that design financial products, such as insurance policies or investment funds.
• Distributors: Entities that distribute or sell financial products, even if they do not have a direct contractual relationship with the end consumer.

Manufacturers must ensure their products meet the standards set by the Consumer Duty, focusing on delivering good outcomes for consumers and avoiding foreseeable harm.

3. Implementation Deadlines

Timeline for Compliance

The Consumer Duty regulations came into force on 31 July 2023 for new and existing products or services that are available for sale or renewal. For products and services that are closed (no longer available for sale or renewal), compliance is required by 31 July 2024. This phased approach allows firms time to adapt their practices and ensure they meet the new requirements.

4. Ongoing Compliance and Review

Continuous Monitoring

Firms are required to continuously review their practices to ensure they adhere to the Consumer Duty. This includes:

• Monitoring Customer Outcomes: Regularly assessing whether the financial products and services provided are meeting the needs of consumers.
• Governance Practices: Implementing robust internal controls and governance frameworks to support compliance with the Consumer Duty.
• Fair Value and Clear Communication: Ensuring that all communications with consumers are clear and that products offer fair value.

Feedback and Adaptation

Firms should also gather and act on customer feedback to improve their services and products. This ongoing process is crucial for maintaining compliance and enhancing consumer trust.

5. Implications for Different Sectors

Banking Sector

For banks, the Consumer Duty necessitates a focus on clear communication of product terms and fair treatment of customers throughout their relationship with the bank. This includes transparency in fee structures and ensuring that banking products are suitable for individual needs.

Insurance Sector

Insurance companies must ensure their policies offer fair value and are communicated transparently. They should also provide adequate support to consumers, particularly when handling claims or providing information about policy details.

Investment Sector

Investment firms are required to ensure that their products and advice meet the needs of retail investors. This includes clear explanations of investment risks and costs, as well as ongoing support to help investors achieve their financial goals.

Consumer Credit Sector

Consumer credit businesses must ensure that their credit products are suitable for consumers and that all terms and conditions are communicated clearly. They should also be vigilant about avoiding practices that could lead to consumer detriment, such as excessive fees or misleading advertising.

Conclusion

The Consumer Duty represents a pivotal shift in the regulatory landscape for financial services in the UK. All FCA-regulated firms and financial product manufacturers must comply with this duty, ensuring that their products and services prioritize the needs of retail customers. By adhering to the standards set forth, firms can enhance consumer protection, foster trust, and contribute to a more transparent and fair financial services market.