In lieu of something more formal from the FCA, KPMG in the UK has developed a simple list of questions to assist firms in determining practically 'how far is far enough' in terms of meeting regulatory expectations for Day One of Consumer Duty.
How did we get here?
Despite firms starting early and running as far (and as fast as) possible to fully implement the Duty, there has simply not been enough time for firms to have developed fully formed strategic and technological response to the Duty and fully implement all required changes.
This can come as no surprise to the FCA. The whole industry has spoken with a single resounding voice about the implementation timeline being too short. Consequently, as the deadline looms, reference to firms achieving `substantive compliance' and the FCA being 'pragmatic in their oversight' have been delivered via FCA speeches. These are designed to provide a degree of reassurance that the FCA is not expecting perfection from Day One. However, beyond this, to date, there has not been anything more definitive about what this means in practical terms.
What are the key questions for assessing 'substantive compliance'?
It is important to highlight upfront, that there is not a single definitive or explicit threshold of 'substantive compliance'. The FCA will flex its view. As such, the answer of 'substantive compliance' for each sector and indeed each firm will be different. For example, sector maturity will play a role. Although notionally, the finish line is in the same place for all firms, sectors will not have had the same starting point. Due to existing regulatory requirements in relation to pricing and value and product governance for some sectors, means that these firm can expect a higher/different bar in terms of what `substantive compliance' under Consumer Duty means.
Whilst navigating the above process may feel like an extra task the firm doesn't have time for, as it will have an adverse impact of the firm's existing implementation plans themselves, it is a vital activity to evidence the approach. It ensures that the firm has a formal position in relation to substantive compliance if/when the FCA challenges the firm on how it implemented Consumer Duty. It also formalises the firm's Day Two plans to ensure that they are part of a governance plan and funded. Finally, it gives the firms a genuine first taste of how the FCA may seek to supervise firms in an outcomes and data led landscape. If there is one phrase to conclude with in terms of how firms should approach substantive compliance, — don't let perfect be the enemy of good.
For KPMG's further thoughts on how the FCA will seek to supervise Consumer Duty, please see our article here.
All KPMG's other articles on Consumer Duty are accessible on our Consumer Duty Hub.
If you'd like to discuss KPMG in the UK's view on substantive compliance further, hear from one of our specialists on our other insights/implementation challenges or require specific support on your Consumer Duty implementation plans, as you race to the finish line, please do not hesitate to get in touch.