The current economic landscape is amongst the most challenging we have seen for many years including high inflation, tax increases and wider concerns about the health of the UK economy. This has not escaped the attention of the Financial Conduct Authority which is setting out its expectations of regulated firms in this environment and how this links to the much discussed Consumer Duty.

Sheldon Mills, the FCA’s Executive Director of Consumers and Competition, recently highlighted the importance and relevance of the Consumer Duty in addressing the current economic climate; in so doing, he cited the fact that “[a]s the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems”. Following on from this, Nikhil Rathi, the FCA’s Chief Executive, used his recent speech at the UK Finance annual dinner to also highlight the relevance of the Duty to new entrants into UK retail financial services as well as helping to shape a framework for the use of Artificial Intelligence (AI) and other new technologies.

In his speech, Mr Rathi recognised industry concerns about the Duty, including how it is measured and how it would be monitored, but he also expressed the hope that, “we have overcome the biggest stumbling blocks in the design and implementation” and that the focus on “heavy lifting up front…should also mean fewer reactive rules” being created by the FCA in the coming years. On this theme, Mr Rathi confirmed the FCA’s view that most firms were on track to implement the requirements and that, in its view, there was no need to move deadlines again. In so doing, he expressed that the FCA, “will remain pragmatic in [its] oversight of implementation and ask for continued openness from firms on their implementation path.” Mr Rathi also identified that in measuring the impact of the Duty, the FCA has set itself measurable targets such as reducing the number of complaints going to the Financial Ombudsman Service – this reflects the regulator’s broader shift towards outcomes and performance metrics-focused regulation (as set out in the 2022/23 Business Plan).

On the point about future regulation and innovation, Mr Rathi highlighted that the FCA intends to work closely with industry so that the Duty can help shape a framework for the use of AI and other technologies. In so doing, it appears that the FCA will utilise a combination of the Duty and the Senior Managers’ and Certification Regime (SM&CR) to enable it to respond quickly to innovation and facilitate new developments (including the increasing role and importance of Big Tech firms) into the UK retail financial services industry with the hope of ensuring a “level playing field”. On this point, Mr Rathi recognised that AI required governance mechanisms within firms to enable consumers “to move from a place of fear to trust” (echoing the recent speech by Jessica Rusu, the FCA’s Chief Data, Information and Intelligence Officer), but suggested that many of the rules that cover financial services are already in place in the form of the Duty or the SM&CR.

Mr Rathi also took the opportunity to highlight the Duty’s focus on vulnerable consumers. In so doing, he made clear that the FCA will be closely monitoring to make sure that firms do not use the Duty as a reason to withdraw products for difficult to reach groups (which may include older people, those living in economically deprived areas and so on), highlighting the focus on cash provision (with new powers to be granted the Financial Services and Markets Bill). Reflecting the view expressed by Sheldon Mills earlier in the year, Mr Rathi recognised that “the Consumer Duty will help firms and consumers in future navigate the cost of living crisis” but was clear that the FCA remained “focused on what is happening on the ground today including how consumers are being treated.”

The FCA has recently been drawing attention to the fact that the Consumer Duty applies to a number of different purposes which almost certainly reflects a fundamental shift in the way firms are regulated in this area. It also demonstrates the size and extent of obligations under the Duty, and the fact that it will touch most parts of regulated businesses with a retail connection. On that basis, it is perhaps unsurprising that it has the potential to impact on huge issues like the cost of living crisis and the future of regulation and innovation, and it is likely that it will continue to exert significant influence for the foreseeable future. In light of the FCA’s stated approach, and in practical terms, senior managers may wish to think about whether and how their firms can leverage an outcomes-focused approach to ensure that business decisions concerning the type of products offered, and the pace of innovation, do not end up with the firm falling below the standards expected by the FCA under the Duty - in circumstances where this may be the case, the FCA has clearly signalled its intention to take action.

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