Described by the Financial Conduct Authority's chief executive as "one of the most far-reaching, cross-cutting pieces of regulation" in decades, the consumer duty was expected to be revolutionary.
Given such hype, there was a risk that it might not meet expectations. One year on, we evaluate its impact and consider its future trajectory.
The duty so far
July 31 2024 marks the first anniversary of the consumer duty for open products and the implementation date for closed products.
What has happened in these first 12 months? For those who doubted the duty's effectiveness, the outcomes may be surprising.
On the same day the duty was implemented, the FCA announced a 14-point action plan to ensure that banks and building societies passed on the benefits of recent increases in the Bank of England base rate to savers.
The FCA noted that the largest savings providers had only passed on 28 per cent of these increases to consumers, making it clear that it would not tolerate any breaches.
This move demonstrated the FCA's commitment to swift action, even against major banks and building societies, signalling that the FCA means business.
By February 2024, the FCA had written to 20 of the UK's largest financial advice firms requesting information on their client service, with a focus on post-advice charges.
Shortly after, the FCA published a detailed guide on good and poor practices following the duty's implementation, indicating there was no room for complacency among firms.
Later in 2024, in response to an increase in complaints, advice business St James's Place appointed a skilled person to review its back book from 2018 to 2023.
This review aimed to determine whether clients had received the annual services for which they were charged.
The firm has set aside a contingency of £426mn for potential fee refunds, underscoring the financial impact of non-compliance.
Looking forward
The first year of the duty showed the FCA's proactive stance. Expectations for the second year should include continued rigorous enforcement.
As firms adjust to the duty for open products, they now face the challenge of complying with the duty for closed products.
This task is more complex, requiring firms to assess closed books that may not have seen client engagement for some time.
The FCA has clarified that the duty applies to the products and services themselves, not to past actions of firms.
To assist firms, the FCA has issued 'Dear CEO' letters highlighting priority areas, including gaps in customer data, fair value, treatment of vulnerable consumers, disengaged customers, and vested contractual rights.
This guidance demonstrates the FCA's commitment to supporting firms, leaving little excuse for non-compliance.
Further action from the FCA
If anyone expected the duty to be a short-term focus, they are likely mistaken.
The FCA has invested significant resources in the duty and must ensure its effectiveness. Lack of enforcement would expose the FCA to criticism and allegations of ineffectiveness.
