That’s it: the 31 July date has been and gone. That means all the talk over the last 12 months of Consumer Duty can be put to bed finally, right?
Not exactly – and for good reason. The Consumer Duty is the new regulatory threshold for those operating in the regulated financial services space: it isn’t a one-and-done regulation; it’s the start of something new.
The rules take the ‘spirit’ we are all operating in already and write them into legislation, requiring firms to consider the needs, characteristics and objectives of their customers, and how the services they offer fit this.
Over the last 12 months (and then some) firms have been reflecting inwards. They’ve been looking at client segmentation, how their proposition really works, defining ‘fair value’, and trying to piece together that jigsaw. So, what now?
The regulator has been very clear that the success of Consumer Duty comes in the review of its implementation, and the constant evolution of business models to ensure compliance with the consumer principle for firms to act to deliver good outcomes for retail customers. The reason for this is that the needs of clients change (regularly), the way products and services are manufactured can also change, and similarly what we once defined as ‘fair’ may not remain static.
So let’s look at what you can do.
Interpreting the data
Firms should have a monitoring programme in place to assess the success of their own compliance with Consumer Duty.
It’s likely that this monitoring programme doesn’t differ in its entirety from the MI you’re already collecting, but what Consumer Duty encourages is that reflection of what your data is telling you.
If we take complaints as an example: firms have a requirement to record complaints data and submit this to the regulator. But under the Consumer Duty, firms should be digging into these statistics. Complaints data must highlight if any of the four outcomes, or the three cross-cutting rules, are being failed. Trends within the data should be highlighted as should how they can be mitigated going forward.
We know that the Financial Conduct Authority is focusing its attention on the retirement income space, so how are you ensuring your firm process, products, and services addresses ‘avoiding causing foreseeable harm’? Have you established a training need? Are your suitability reports and advice process fit for purpose? Has the client truly understood what they have ‘purchased’?
Now clearly, this list isn’t exhaustive, but it’s these types of questions we would naturally want firms to ask themselves. They’re also the types of questions the regulator will ask if (when) it comes to reviewing the impact of Consumer Duty.
Culture and governance
Consumer Duty is more than just policy; culture and governance are also a significant part of the new legislation. Therefore a key action for firms is ensuring compliance with Consumer Duty features within discussions of senior managers on an at least annual basis.
For firms with a Board structure, Consumer Duty, and review against the desired outcomes, should be discussed and documented.
Firms will be used to an annual review of their documentation – an important one will be a firms’ Systems and Controls programme (the Senior Management Arrangements, Systems and Controls sourcebook, also known as compliance monitoring plan). You should ensure this document now reflects all the changes made under the Consumer Duty.
Another top tip is that firms should proactively engage with information from the regulator. During the implementation period the FCA released their interim findings on implementation plans and value statements – this clearly shows firms where the FCA’s focus is on, and similarly where they have found areas of weakness.
Engage with these findings and apply these to your own business – even if it is just a ‘logic check’.