Introduction
The FCA’s Consumer Duty has had a significant impact on the SMCR. It has:
- placed a greater emphasis on the importance of culture and conduct in SM&CR firms
- the FCA now holds senior managers accountable for consumer outcomes; and
- led to a number of changes to the SM&CR regime itself.
First: great emphasis on culture and conduct
The Consumer Duty emanates in part from The Consumer Principle, Principle 12, which requires firms to ‘act to deliver good outcomes for retail customers.’ In turn, the more detailed rules require firms to ensure their strategies, governance, leadership, and people policies lead to good outcomes for customers.
The Consumer Duty has placed a greater emphasis on the importance of culture and conduct in SMCR firms that offer products and services to retail customers.
Firms are now expected to create a culture where retail customers are at the heart of everything they do…and be able to demonstrate that with evidence and not just empty representations.
Second: more formal underpinning for senior manager accountability
The Consumer Duty has raised the bar for senior managers’ accountability for good consumer outcomes and does this by promulgating four outcomes and three cross-cutting rules. These obligations set out expectations how firms and senior managers should act.
To prove good outcomes for all retail customers are being achieved, there are four outcomes that you must pursue:
- the governance of products and services
- price and value
- consumer understanding; and
- consumer support
The cross-cutting rules articulate the standards of conduct that the FCA expects under the new Principle 12. They set out how firms and senior managers should act (proactively and reactively) to deliver good outcomes for retail customers:
- act in good faith towards retail customers
- avoid causing foreseeable harm to retail customers
- enable and support retail customers to pursue their financial objectives
All of this in addition to compliance with the existing SM&CR Duty of Responsibility and the Senior Manager Conduct Rules. Stakeholders across the industry have recognised the uplift in regulatory obligation and pressure.
Third: some specific examples of how the Consumer Duty has impacted the SM&CR and SMFs
The Consumer Duty has led to several changes to the SMCR regime itself. For example, the FCA introduced a new Conduct Rule: individual Conduct Rule 6, which requires all conduct rules staff to act to deliver good outcomes for retail customers. That obligation mirrors Principle 12 which requires firms to act to deliver good outcomes for retail customers.
- FCA now expects senior managers to have a deeper understanding of their firms’ customer base and the risks they face.
- Senior managers are taking more proactive steps to identify and address potential harms to customers.
- Firms are reviewing their SMCR arrangements to ensure that they are aligned with the requirements of the Consumer Duty.
- Senior managers are holding themselves and their staff to higher standards of conduct. This is certainly where the Consumer Duty’s “cross-cutting rules” come into play.
- Senior managers are now signing off on an annual assessment of the firm’s monitoring of the Duty.
- If an SMF is also Consumer Duty Board Champion, they are now having to will need to update their statement of responsibilities to include this role.
- Senior managers should review and approve an assessment of whether the firm is delivering good outcomes for its customers which are consistent with the Duty, at least annually. Such an assessment can be developed by answering key questions such as those found in this template: Consumer Duty Key Questions Checklist.
Conclusion
Overall, the FCA’s Consumer Duty has had a significant impact on the SM&CR. It has:
- placed a greater emphasis on the importance of culture and conduct in SM&CR firms;
- raised the bar for senior managers’ accountability for consumer outcomes; and
- led to a number of changes to the SM&CR regime itself.
Please reach out and let’s discuss how Leaman Crellin can run a Consumer Duty health check to uncover any relevant blind spots, drive up customer retention rates and demonstrate compliance.
