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Implementing the Consumer Duty in payment firms – A letter from the FCA

National Audit Office launches review of FCA's effectiveness
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With only five months before the Consumer Duty comes into force, the FCA has issued a letter to payment firms about the need for them to undertake a “significant shift in culture and behaviour” to comply with the new Duty rules.

Following the portfolio letters issued by the FCA to many financial services firms, the FCA now issued a ‘Dear CO’ letter specifically to Payment Institutions, Electronic Money Institutions and Registered Account Information Service Providers, to help them implement and embed the Consumer Duty effectively considering unique features of payment services.

As outlined in the letter, the FCA expects these firms to make the Consumer Duty a top priority, and ensure good outcomes for customers are at the heart of firm’s strategies and business objectives.

Matthew Long, FCA Director of Payments and Digital Assets wrote, “We recognise that the implementation of the Duty comes at a challenging time. However, we believe that embedding the Duty effectively will help payments firms continue to build trust amongst consumers in using the expanding range of products and services and enable the sector to continue to grow in a way that delivers consistently good outcomes for customers.”

Firms will need to discuss this letter amongst their board members and Consumer Duty Champion and agree what further actions they plan to take to meet the requirements set out by the FCA. Firms should ensure that appropriate records of such discussions are evidenced and any agreed actions appropriately carried out, and progress is reported to the Senior Management.

Consumer Duty letter key highlights

The FCA’s letter highlighted four areas of consideration for payment firms to help assist in their planning. These are:

  • A reminder of the Duty timeline deadlines and how the new rules apply to payment firms
  • How payment firms should embed the Duty
  • FCA feedback from their review of firm’s implementation plans
  • How the Duty will be supervised amongst payment firms and next steps

We’ve put together the following summary of each of the four areas, highlighting the key takeaways for your business.

Consumer Duty timeline and how it applies to payment firms

The Duty comes into force on 31 July 2023 for new and existing products or services that are open to sale or renewal. However, firms need to have completed all reviews necessary to meet the outcome rules and shared necessary information with their distributors by the end of April 2023. The Duty will come into force for closed products or services next year on 31 July 2024.

Under the Duty, payment firms are required to act to deliver good outcomes for customers (including those in vulnerable circumstances), with the focus on acting to deliver good outcomes at the centre of their business objectives.

Where an authorised or registered firm, for example a money remitter or electronic money issuer, provides payment services through an agent or, in the case of an electronic money issuer, distributes or redeems electronic money through an agent or distributor, the authorised or registered firm is responsible for ensuring that the third party complies with the Duty.

For more information on the requirements of the Duty and what they mean for payment firms, see our guide of the latest updates here.

How payment firms should embed the Duty

The FCA requires payment firms to consider a number of key areas to ensure they deliver consistently good consumer outcomes under the Duty. In their letter, the FCA highlighted some of these areas as: products and services, price and value, consumer understanding, and consumer support.

Products and services: Firms need to demonstrate that their products and services are appropriate, meet the needs of their target market and cause no harm to vulnerable customers. They also need to ensure firms in their distribution chain also comply with the Duty by sharing necessary information with them.

Price and value: Firms need to take into account  any regular charges or fees and any contingent fees or charges when assessing whether a product provides fair value. They also need to consider whether vulnerable customers are adversely impacted by their charging structures.

Consumer understanding: Firms  should provide clear communication to enable consumers to make informed decisions about their products and services. This would include firms providing clarity over fees and charges, highlighting the difference between any regulated and unregulated products and avoiding communicating in technical and complex language to customers.

Consumer support: Firms are expected to provide support that meet consumers’ needs through the full lifecycle of their product or service.  Firms also need to make it clear to their customers how they can access their support channels if they are experiencing difficulties or wish to make a complaint.

FCA feedback of implementation plans

On 25th January, the FCA published feedback for firms on the implementation plans they reviewed. The review found that whilst many firms had established extensive programmes of work to embed the Duty, some firms were still further behind in their planning.

Following the review, the FCA has asked firms to particularly focus on the following areas:

  • Effective prioritisation: Firms should make sure they are prioritising effectively, with a focus on the areas that will make the biggest impact on outcomes for consumers.
  • Embedding the substantive requirements: Firms need to carefully consider the substantive requirements of the Duty, so that when they are reviewing their products and services, communications and customer journeys, they identify and make the changes needed to meet the new standards.
  • Working with other firms: Firms need to share information and work closely with other firms in the distribution chain, to make sure they are all delivering good customer outcomes.

For more information on the FCA’s feedback following the review of firms’ implementation plans, read our article here.

The FCA’s next steps

The Consumer Duty is a cornerstone of the FCA’s three-year strategy to set and test higher standards between now and 2025. As part of the work, larger payment firms will be required to regularly provide updates on implementation progress and their internal governance papers and minutes, which the FCA will engage with and challenge.

Payment firms of all sizes should also be prepared for the FCA to include them in engagement. The FCA will also consider a firm’s implementation of the Duty as appropriate in their casework and expect all firms to be able to explain the actions that have been taken to comply with the Duty on request.

The FCA plans to continue to support firms in the run up to the July deadline, holding further events, providing updates on their website, and engaging with payment firms and trade associations. A short, anonymised survey will also be sent to a sample of firms to help the FCA understand the progress firms are making in their implementation plans.

To read the full FCA letter to payment firms, click here.

How we can help

For everything you need to know about the Duty and the requirements for your business, check out our dedicated FCA Consumer Duty section for the latest updates.

If you’d like to know more about how we can assist you with implementation of the Consumer Duty or how we can support you with authorisation arrangements, or any other regulatory compliance matters, please contact our specialist team here.

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