In July 2022 the Financial Conduct Authority (FCA) introduced the 'Consumer Duty', which set out new rules to enhance consumer protection within financial services. These rules, which applied to open products and services since July 2023, extended to closed products and services on 31 July 2024. The Duty requires firms to actively work for their customers' best interests, raising the standard of care.
In May 2024, the FCA sent out 'Dear CEO' letters, formal notices to firms with closed products stressing the urgency of adjusting practices to meet Consumer Duty standards before the July 2024 deadline.
In December 2024, the FCA published its findings from a review of payments firms’ implementation of the Consumer Duty, setting out examples of good and poor practice across reviewed firms and setting out next steps for both firms and the FCA.
In this guide, we’ll cover the Consumer Duty rules, their ongoing impact, and the necessary adjustments firms should ensure are integrated into their approaches.
Contents:
What is the Consumer Duty?
The 'Consumer Duty' requires that regulated firms (and certain other entities in the 'supply chain') conduct themselves with a new level of responsibility for the outcomes experienced by retail customers when dealing with, and buying products from, these firms.
What does it involve?
This “new level of responsibility” requires firms to take account of 3 cross-cutting rules which set out how they should act to deliver good outcomes for retail customers:
- Avoid causing reasonably foreseeable harm to retail customers.
- Take reasonable steps to enable retail customers to pursue their own financial objectives.
- Act in good faith towards retail customers.
The FCA intends that these actions will lead to 4 key outcomes for customers:
- Products and services that are designed to meet the needs, characteristics and objectives of customers in the identified target market.
- Prices of products and services that represent 'fair value' for customers.
- Consumer understanding is promoted by communications that are clear, enabling retail customers to make informed decisions about their financial products and services.
- Customer support that meets the needs of retail customers and avoids putting obstacles in the way of their wishes (such as slow response times, or high exit fees leading to customer inertia).
Who does it affect?
The rules apply to all FCA-regulated institutions, but they also extend beyond direct consumer interactions to include entities in the 'supply chain', such as intermediaries, asset managers and insurance companies – even if they do not deal directly with consumers.
FCA insights on Consumer Duty implementation
In October 2024, the FCA published a detailed review of Consumer Duty implementation, building on earlier insights. The review asserted that the Consumer Duty has driven notable improvements in consumer protection, with many firms adopting more customer-focused practices and embedding the Duty into their governance and operations.
However, the FCA flagged ongoing challenges, particularly in areas like designing products that meet diverse consumer needs and ensuring fair treatment of vulnerable customers. The review also highlighted gaps in firms’ monitoring and reporting mechanisms, which need to better demonstrate how they are delivering good outcomes for customers.
The FCA reiterated that while progress has been made, continuous effort is required to address these shortcomings and fully embed the principles of the Duty across all areas of operation.
Recommended good practices
The FCA highlighted the following as examples of ‘good practice’:
- Customer-focussed product design: Firms actively engaged with customer feedback to design products that meet specific consumer needs, particularly for vulnerable groups.
- Clear communication: Companies improved customer understanding by simplifying terms and conditions and ensuring information was tailored and accessible for all customer segments.
- Proactive support for vulnerable consumers: Some firms implemented dedicated teams or enhanced training programs to ensure staff could identify and support customers in vulnerable circumstances effectively.
- Outcome monitoring: Firms that demonstrated strong practices regularly assessed their services to confirm they were delivering fair outcomes, with transparent reporting of findings to senior management.
- Integration of Consumer Duty in governance: Leading firms embedded the Duty into their decision-making processes, including appointing board champions and conducting regular reviews of Consumer Duty compliance. As of 27 February 2025, appointing a board champion is no longer a requirement, but may still be looked upon favourably when applied in combination with embedding the Duty in other areas of operation.
Areas for improvement
While noting that progress has been significant, the FCA has identified several areas that require further attention:
- Product and service suitability: Some firms have struggled to design products and services that genuinely meet the diverse needs of their target customers, especially vulnerable ones.
- Monitoring and evidence of outcomes: Gaps were identified in firms’ ability to monitor and demonstrate how their actions are delivering good outcomes for consumers. Many firms lacked robust data or systems to evaluate this effectively.
- Fair value assessments: The FCA found inconsistencies in how firms assess and document whether their products and services provide fair value to customers.
- Governance and accountability: In some cases, firms had not sufficiently embedded Consumer Duty principles into governance structures or ensured that senior management took accountability for implementation.
What do you need to do?
Here are some essential actions to ensure the Consumer Duty is embedded into your firm’s approach and that you align with the FCA’s recommended practices:
- Conduct regular reviews of your procedures and policies related to products with a particular focus on assessing and evidencing their fair value to consumers.
- Provide enhanced training for staff to ensure they understand Consumer Duty requirements and can consistently apply them, particularly in customer interactions.
- Strengthen systems for collecting and analysing data to assess whether customer outcomes align with the Duty’s standards.
- Develop and implement targeted processes to identify and support vulnerable customers, ensuring their needs are addressed at every stage.
- Ensure cooperation between your project and business teams.
The FCA's feedback highlights key areas of focus: improving data and monitoring, proactively resolving issues, and embedding a deep understanding of the Consumer Duty across all levels of operation. Continuous review and adjustment will be essential.
As a firm, you need to reflect the Duty in your strategies, governance, leadership, and people policies, this ongoing project may seem daunting. However, our financial services solicitors are on hand to provide expert advice and prompt assistance should you require it.
