Consumer Duty: The importance of effective monitoring and Management Information for EMIs and PSPs.

The FCA's new Consumer Duty, set to come into force on 31st July 2023, will require EMIs and PSPs to prioritize their customers' interests and needs while managing risks and complying with relevant regulations. While the duty does not introduce new anti-money laundering (AML) requirements, it places a greater emphasis on existing requirements and will likely result in increased regulatory scrutiny. EMIs and PSPs must ensure that their AML policies and procedures are up to date and effective, providing evidence of compliance to the FCA.

Effective ongoing monitoring of customers and transactions is essential to comply with the Consumer Duty and ensure retail customers are not exposed to harm. This includes monitoring transactions for unusual activity, investigating suspicious transactions, and reporting any suspicious activity to the relevant authorities. EMIs and PSPs must also have systems in place to detect and prevent fraud, including money laundering and terrorist financing.

Management Information (MI), which allows firms to monitor performance and risk, is also a crucial tool in ensuring compliance with the Consumer Duty. EMIs and PSPs must produce MI that highlights key risks and issues, providing senior management with the necessary data to make informed decisions and take appropriate action. The MI should be accurate, complete, and presented in a transparent and easy-to-understand format.

EMIs and PSPs must also have effective governance arrangements in place to ensure compliance with the Consumer Duty. Senior management must understand the potential risks associated with their customers and transactions, ensuring that appropriate measures are in place to manage those risks. Remuneration policies should not incentivize employees to act in a way that is contrary to the Consumer Duty.

To comply with the Consumer Duty, EMIs and PSPs must implement a risk-based approach to AML. This involves conducting a thorough risk assessment to identify and understand the potential risks associated with their customers and transactions. Firms must also conduct thorough customer due diligence to verify the identity of their customers and understand the nature of their customers' business or activities. EMIs and PSPs must keep accurate records of their AML processes and regularly review and update these records as necessary.

In summary, the FCA's new Consumer Duty places a greater emphasis on existing AML requirements and will likely result in increased regulatory scrutiny. Effective ongoing monitoring of customers and transactions, along with the use of MI, is essential to ensure compliance with the Consumer Duty and prevent retail customers from being exposed to harm. By implementing a risk-based approach to AML, conducting thorough customer due diligence, having systems in place to detect and prevent fraud, and ensuring effective governance arrangements, EMIs and PSPs can meet their obligations under the Consumer Duty and treat their customers fairly.