Following the Dear CEO letter from the FCA (shared on 21st February 2023), I thought I’d share some of my insights and experiences from working with payments firms on implementing the new Consumer Duty and what I think the challenges are in aligning with the FCA’s expectations.

The letter and its context

The letter is strong and unequivocal. It stresses the focus of ‘good outcomes for customers to be at the heart of firms’ strategies and business objectives’ and highlights where payments firms are still not meeting the expectations of the FCA. This was quickly followed by another complementary letter, on 16th March 2023, addressing the FCA’s priorities for payments firms.

By issuing these letters, the FCA has reinforced its expectations in navigating the constantly evolving regulatory landscape.

Despite the communications from the FCA, there remains significant shortcomings in some payments firms’ Consumer Duty implementation plans. With this in mind, firms should be reflecting and asking– Are we where we need to be on our roadmap to compliance with the Duty?

The payments landscape

The payments ecosystem comprises a wide range of firms and business models of various sizes and regulatory status, each working in their own silos towards their own business objectives and compliance obligations.

With the new Consumer Duty, the current siloed approach needs to make way for a more collaborative approach with clear outcomes that puts consumers front and centre. Payments firms will be required to focus on ensuring good outcomes for customers, where they have a material influence over the product/service in question, in some cases, even in the absence of a direct contractual relationship with the customer, as discussed in my recently published brochure 'The new Consumer Duty - Key considerations and challenges for Payment Service Providers'.

What is clear to me is that there is something of a divide between what the FCA is requiring payments firms to implement and the ability of some firms to objectively understand and identify where they do not comply. This has resulted in disparate planning whereby some firms are being too high-level and some being overly confident in their current level of compliance. We have also seen draft applications for FCA authorisation which have failed to evidence consideration to the new regime.

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In its letter, the FCA discusses some of its observations: “We saw some plans that suggested firms may have considered the requirements superficially or are over-confident that their existing policies and processes will be adequate”; and stresses the need to expedite the work with other firms in their value chain in the context of information sharing: “…some firms may need to accelerate their work on this important aspect of implementation.”

How do you measure up?

Our experience has shown that there is a large divide in how firms are approaching their Consumer Duty implementations. In some cases, this may be attributed to the size, scale and nature of the firms, but in other cases, the variance may be the result of different levels of focus on conduct obligations and delivering good customer outcomes. Or, as highlighted above, a level of over-confidence in current compliance, or a lack of understanding within some firms. 

Although not an indicator of compliance, benchmarking the approach and progress against peer groups may be useful for payments firms to evaluate whether they are an outlier or not. However, given the diversity of payments firm types across the eco-system, such benchmarking can’t be fully relied upon.

I also believe this informal benchmarking might encourage some payments firms to do just the minimum required, which runs the risk of being completely out of step with the FCA’s expectations and the spirit of the new Consumer Duty.  

That said, some payments firms have undertaken a formal gap analysis exercise with the Consumer Duty requirements. This approach goes some way towards such firms taking a hard look at themselves in the implementation of the new Consumer Duty. 

A sense-check

With particular attention to confirmation bias, to be asking in contemplation of the April deadline are:

  • Do I fully understand my role in the end-to-end payment value chain in the context of my Consumer Duty obligations?
  • Am I clear on existing gaps and priority areas for remediation?
  • Does my implementation plan objectively align with the FCA’s expectations?
  • How can I gain assurance that I am aligned with the FCA’s expectations on Consumer Duty?
  • Where do I sit in comparison to my peers?

Time for action

What is clear is that the FCA is making this flagship change in the regulatory framework a top priority and will take a dim view of any lacklustre approaches to compliance.

The use of internal independent review and/or external support can help firms in assessing their alignment. Particular consideration should be paid by those payments firms that may be displaying over-confidence in their approaches in the absence of any formal assessment.

Whilst it is the FCA who ultimately determines compliance vs non-compliance, firms can demonstrate best endeavours in seeking assurance that their plans are aligned with the FCA’s expectations, to give the Board and the Board Consumer Duty a peace of mind that all the aspects of the Duty have been diligently considered.

Overall, all payments firms need to be conscious that the FCA scrutiny will continue and should be prepared to robustly articulate and evidence their approaches to delivering the new Duty.

Should you have any questions or concerns about the implementation of the new Consumer Duty and what implications it has for your organisation, don’t hesitate to contact us.

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