The Financial Conduct Authority’s (FCA) “intense” supervision of its flagship consumer duty regime is driving an increase in regulatory pressure felt by City firms, according to KPMG.
KPMG UK’s latest biannual Regulatory Barometer, shared exclusively with City AM, showed requirements to comply with and embed consumer protection regulations saw the greatest increase among the categories it tracks.
Its score, out of 10, has risen to 7.4 – from 6.8 in March.
KPMG’s report coincides with the FCA’s annual meeting on Thursday.
The agency is likely to face questions over its approach to balancing consumer protection with a “secondary objective” to facilitate competitiveness and growth, which the government handed financial regulators last year.
Described as one of the FCA’s biggest shake-ups in years, the consumer duty requires firms to deliver good outcomes for retail customers with regard to quality and price of goods and services.
The changes came into effect on 31 July 2023 for new and existing products or services that are open to sale or renewal and fully kicked for all offerings on 31 July 2024.
“UK firms have really felt the weight of the consumer duty over the last six months as the reform has shifted from policy interpretation and implementation to high supervisory intensity,” said Philip Deeks, head of KPMG’s Regulatory Insight Centre.
He said that while the increased pressure partly reflected the “mammoth task firms faced as they raced towards the July deadline”, it was mainly driven by “the pace and intensity with which the FCA has challenged firms for evidence of the outcomes they are generating”.
“The FCA has developed a keen appetite for data from firms. It has also moved quickly and been proactive in sharing its initial findings on how firms have implemented the duty,” Deeks said.
“Now that the duty has been fully implemented, some firms may be breathing a momentary sigh of relief. But, as we’ve heard again today, we do not expect intense supervisory pressure around consumer protection to ease off as the duty and regulatory expectations around it evolve.”
City firms have been forced to overhaul their operations and implement sweeping reforms to ensure they are aligned with the duty.
Speaking with City AM in July, the boss of FTSE 100 asset manager Schroders, Peter Harrison, said the changes had been a “headache” for the firm that required “tens of thousands of pages of work”, though he added it was ultimately a positive shift.
An FCA spokesperson commented: “The consumer duty creates an environment for healthy competition based on high standards, which helps support competitiveness, confidence and trust in UK financial services.
“We recognise the effort required by firms, particularly over the last two years as they have been making changes to implement the duty. We welcome the initial positive results for consumers.”
Further pressure in payments and crypto
KPMG said regulatory pressure is also building in other areas that impact consumers. The score for payments has risen to 7.1 from 6.8, while digital finance increased to 7.3 from 6.9.
The report highlighted regulators’ focus on improving payment infrastructures and more stringent rules around the marketing of crypto assets.
Elsewhere, banks and fintechs will be forced to reimburse scam victims up to a limit of £85,000 per claim from 7 October under controversial new rules from the UK’s payments regulator.
Still, the highest scoring categories were regulations on maintaining and strengthening financial and operational resilience, both scoring 8.1.
Banks and insurers face new requirements for solvent exit planning. New capital rules designed to shock-proof banks are due to be implemented in January 2026, although they were watered down earlier this month following lobbying by the City.
KPMG noted that while ESG and sustainable finance were still “high on the regulatory agenda”, the burden on firms had fallen to 7.9 from 8.4 amid “a slowing in publication of new policy, following several years of concentrated activity”.