The FCA wants less Consumer Duty bureaucracy, but will we really be able to do less?
The FCA's latest consultation, CP26/23, is aimed at achieving something many firms have been asking for since Consumer Duty went live- a lighter touch. I responded formally to the consultation as part of my work chairing the APCC's consumer credit working group, but less formally, this is my thinking.
Less unnecessary compliance activity.
On the face of it, less compliance activity is good news for all. The FCA appears to be moving towards a position where they want to see the duty being applied in a way that has a more proportionate impact on firms and removes unnecessary complexity.
This seems sensible. They are asking every firm to:
• Understand the role it is performing
• Focus on those consumer outcomes that they influence
• Avoid collecting mountains of information ‘just in case’ it might be needed some day.
This is very welcome, however, there is one issue that needs to be understood: what can firms safely stop doing?
This is the big question, because if the answer from the FCA isn’t clear, it’s likely most firms will continue doing exactly what they’re doing right now ‘just in case’. Covering your backside is natural if there’s no clarity around what is and isn’t required.
The reality in motor finance and insurance
Working with dealers, underwriters and lenders across the retail motor sector, I regularly see Consumer Duty requirements being duplicated throughout the distribution chain. A dealer may be asked for monitoring information by:
• their insurers
• their finance providers
• their network principals
• their product providers
• their compliance consultants
They’re all looking for assurance in the form of MI, reporting and evidence of procedures in place and being followed. Many will want in a specific format that they provide. As a result, that dealership ends up producing multiple versions essentially the same information. That isn’t improving customer outcomes. It's just creating more administration.
Proportionality sounds simple. In reality it's complicated!
One of the challenges with Consumer Duty has always been interpretation. Terms such as reasonable, proportionate, 'material influence' and good outcomes
all sound straightforward until dealers have to apply them in practise.
For example, "reasonable reliance". The FCA wants firms to be able to rely on information provided by other regulated firms. That sounds sensible. But when does reliance stop being reasonable?
• What constitutes a warning sign?
• How much challenge is enough?
The consultation acknowledges this issue but doesn't fully solve it.
The danger of replacing duplication with gaps
Nobody wants multiple firms monitoring the same thing, but there's an equal risk at the other extreme. If every firm focuses only on its own narrowly defined responsibilities, who picks up issues that sit between organisations?
Distribution chains are rarely as neat as regulatory diagrams suggest. Responsibility often overlaps and Influence is shared. Customer outcomes are affected by multiple firms at different stages of their purchase journey.
The challenge isn't simply removing duplication, it's making sure accountability remains clear.
Contractual requirements may keep the regulatory burden alive
One area that deserves particular attention is the difference between regulatory expectations and contractual expectations.
Even if the FCA reduces what it expects dealerships to collect and monitor, many insurers, lenders and principals may continue imposing extensive requirements through contracts and their own oversight programmes. In a worst-case scenario, motor dealers could find that the regulatory burden reduces on paper while the practical burden on them essentially stays the same.
This is why clarity from the FCA matters. The clearer the regulator is about proportionality, the more confidence we will all have to review whether our current monitoring and reporting requirements are genuinely necessary.
Smaller firms need certainty
Ironically, the firms most likely to benefit from greater proportionality are often the least able to take risks with regulatory interpretation.
Without clear examples and regulatory comfort, many smaller firms will continue taking the safest option and collect more information, produce more evidence and create more reports.
Not because they want to, but because getting ‘proportionality’ wrong feels risky. They’d rather be doing too much that too little.
This would produce the exact opposite of what CP26/23 is trying to achieve.
The question the FCA must answer
The consultation's direction is broadly the right one. Most firms would support a move away from a "collect everything from everyone" approach, but for the consultation to achieve its aim, firms need more than principles. They need practical certainty.
A useful test for the FCA when finalising their guidance might be 'what can a well-run intermediary firm safely stop doing as a result of CP26/23?'
If the FCA can answer that question specifically and explicitly, their consultation could deliver meaningful change. If they can't, Consumer Duty compliance may continue to look very much as it does today.
At Ingeni, we'll be watching closely to see whether the final guidance delivers genuine proportionality or simply another interpretation exercise for firms to navigate.
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