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FCA Board Minutes – The Consumer Duty and the Regulatory Diversity and Inclusion (D&I) Framework

Jul 7, 2022 | FCA

Link(s): FCA Board Minutes: 26 May 2022

Context

The FCA has published its 26th May 2022 Board meeting minutes, which cover a number of issues including the Consumer Duty, the Regulatory D&I Framework, and the FCA’s Freedom of Information Act (FOI) and Subject Access Request (SAR) pressures.

Key points to note

The Consumer Duty and the FOI / SAR issues were included in Nikhil Rathi’s (FCA Chief Exec.) report to the Board, with the D&I framework being a separate agenda item.

In relation to the Consumer Duty:

  • The Board was given assurance that feedback from external stakeholders on the proposed rules and timescales was being addressed and associated risks mitigated, and it was noted that consultation responses had been reviewed in detail and the rules were being developed to address concerns raised with supporting guidance. This indicates that the final rules may differ from those published in the second Consultation.
  • The intention appears (still) to be that the new rules will come into effect in July, but that there will be a phased implementation period (the specifics of which are still to be discussed and agreed) to allow firms to embed and deliver against the new requirements.
  • A suite of communications is planned, including at sectoral level and small firm engagement, through supervisory work, live and local events, webinars and guidance on the website. This level of regulatory engagement in relation to a cross-sector issue is a significant indicator of how seriously the FCA is taking the Consumer Duty.
  • The team continues to work with FOS to ensure alignment between members of the regulatory family.
  • The Board highlighted the potential reputational risk that the Duty would not come into force during the height of the cost-of-living pressures, where consumers would need additional protections the most. Options to mitigate this risk were discussed, including placing an obligation on, or signalling to sectors most impacted by the cost-of-living pressures. This indicates that the FCA clearly sees the Consumer Duty as a key piece of consumer protection.

In relation to the FOI and SAR pressures:

The Board noted the operational challenges and were assured that these were being mitigated through increased skilled resource and improved management information to better understand the caseload. This indicates that the FCA is currently receiving unusually high numbers of FOI requests and SARs.

In relation to the Regulatory D&I Framework:

  • The Board was briefed on the proposed new D&I framework that would be subject to public consultation. It recognised that the financial services sector still needed to make significant progress on D&I with large gender and ethnicity pay gaps and parts of the industry lacking diversity at senior levels.
  • The proposals aimed to further the FCA’s operational objectives by, for example, putting D&I at the core of a firm’s culture and practices and ensuring inclusion of diverse viewpoints arising from different knowledge and experiences are represented.
  • The package of measures proposed includes guidance to clarify and make explicit D&I considerations, build on existing rules, and in some areas put in place new requirements and new guidance.
  • The Board emphasised the importance of driving change in the right way, ensuring cultural change was embedded and any new measures weren’t open to manipulation or treated as ‘tick-boxing’ exercises, or would not cause significant unintended consequences.
  • The Board agreed that the main aim was to have consistent standards across the industry, aligned with the new Consumer Duty, and have appropriate data and evidence to show the impact and give insight into where firms needed to do more to embed D&I. The importance of proportionality was also noted.
  • The Board noted the importance of the proposed data collection to facilitate change and provide a framework for conversations with firms tailored to where they were in their D&I journey. The Board discussed the approach to data collection and disclosure by firms, noting that if a disclosure would lead to an individual being identified data would not be disclosed.
  • The Board welcomed further sight of the proposals as the policy was refined ahead of the consultation being published.

Next actions

None – for information and awareness.