The FCA has recently published its review of how payments firms have implemented the Consumer Duty (the Duty). Of the 23 firms reviewed, just over half were rated as satisfactory. Conversely, nearly half had not implemented the Duty sufficiently, and therefore are considered to pose a moderate or higher risk of delivering poor consumer outcomes.
The common theme among firms with the best compliance was their systematic approach to implementation. This included clearly establishing target markets and outlining what constituted good outcomes for their products and services, price and value, consumer understanding and consumer support. Proper compliance was also reflected by clear governance structures monitoring delivery of positive consumer outcomes and taking prompt action to tackle shortfalls.
In contrast, non-compliant firms often relied on their existing processes and controls to implement the Duty. The FCA found that such firms believed that payment products and services posed fewer risks to consumers compared to other FCA-regulated products, therefore lacking the incentive to make improvements to comply with the Duty. The FCA reiterated its view that whilst payment products may carry different risks to other sectors, they still pose significant inherent risks for poor consumer outcomes.
Firms should adhere to FCA guidance to achieve positive outcomes for consumers. This approach is characterised by:
- Establishing the target market: Target markets should be specified to a detailed level by considering the characteristics, risk, complexity, and nature of the product. It is best practice for high and medium-risk products to have narrower well-defined target markets, to reduce the risk of harm. However, it is also accepted that wider target markets may be appropriate for low-risk products and services.
- Agent oversight: Firms are reminded of their responsibility for the actions of their agents and distributors. As such, they are expected to effectively oversee intermediaries' compliance with the Duty by implementing appropriate controls and systems.
- Fair value assessments: Firms must ensure products provide fair value by evaluating how reasonable the price a consumer pays for a product is compared to the overall benefits they expect to receive. The benefits, limitations, and total cost (including fees) should all be considered.
- Consumer understanding: Communication arrangements should regularly be assessed.
- Consumer Support: Firms should offer easily accessible and effective support channels.
- Governance: The Duty should be reflected in firm governance, strategies, and incentives. Firms are expected to show that their management and board suitably considers matters and their functions under the Duty.
- Management information (MI): A complete and relevant set of MI should be available to test, assess and understand consumer outcomes and ensure compliance with Duty requirements.
The FCA emphasises that firms must consider the above metrics, apply them to address any gaps or shortcomings, and raise standards. It is stressed that firms should focus on resolving issues proactively, rather than waiting for FCA intervention and alleviating harm later.
