- Understand how the regulation applies to your business
Businesses must first understand how the regulation impacts them by conducting thorough impact assessments – these should have already been completed but we are still seeing businesses who are undergoing these assessments now. This exercise should provide clarity on areas such as the products and services in-scope, and include risk assessments to understand (i) the nature of the product or service being offered, (ii) the characteristics of customers in the relevant target market, (iii) the firm’s role in relation to the product or service.
- Ensure you have a clear view of your customer
Businesses need a clear view of the relevant target customers for each of their products and services, both in terms of who is in-scope as a ‘retail client’ and critically, their needs and characteristics. Firms need to consider their customers’ resources, degree of financial capability or sophistication, and potential characteristics that would indicate vulnerability.
This analysis needs to be done alongside an assessment of the product, to establish reasonable customer expectations, e.g. “top end” vs “no frills”.
Firms must ensure they have customer and product data in good order to conduct the initial analysis and support ongoing assessments. Processes may need to be updated or introduced to evaluate the customer base, to monitor customer suitability for each product, and to ensure vulnerable customers are identified and served appropriately.
- Coordinate implementation across the business
Effective implementation of Consumer Duty requires coordination across multiple business functions (e.g. marketing and sales, customer service, operations, compliance, technology) and in larger businesses, across multiple business lines (e.g. retail banking, private banking, asset management).
The challenge is to implement the regulation at business line level, looking at the specific products, services and target customers, but also in a coordinated fashion at the group level to support Board oversight.
A consistent approach to overall implementation is therefore critical. A central team should support firm-wide implementation, developing common approaches for impact assessment, setting up working groups, outlining methods for demonstrating compliance, supporting setup of appropriate governance controls, development of customer outcome metrics and so on. This team can also play the role of PMO to support consistent programme governance.
Each business line should establish a cross-functional team responsible for overseeing implementation within that business line, whilst supporting the wider firm’s overall approach.
- Understand your role in the distribution chain
One of the significant challenges of the Consumer Duty regulations is navigating the requirements based on your firm’s role in the Distribution chain for any product. Your impact assessment should ensure you have the full picture across all your products and services. We suggest you map the distribution chain for each of your products and outline the roles played by each participant in the chain, including who has the customer relationship, who manufactures the product, and how each participant is delivering value.
Once you understand this, consider your own firm’s obligations. Ultimately, this should result in a single firmwide product and service catalogue providing a master view, with analysis completed and mapped appropriately for key attributes, definitions and requirements across all products.
Good cooperation and timely communication with your upstream and downstream partners is essential to ensure alignment along the chain. Ed Smith, FCA’s head of competition policy, recently said, “it’s vitally important that all the firms along that chain are pulling in the same direction in order to produce good outcomes for consumers”. Smith went on to say that the regulator has applied the duty “thinking end-to-end across the distribution chain, understanding who does what, and what the relevant information is to ensure the chain works effectively and delivers for the end customer”.
By the interim 30th April deadline manufacturers need to have undertaken fair value assessments and have shared relevant information with their supply chain. This will allow distributors to review and respond appropriately before the 31st July deadline.
- Demonstrate compliance and embed controls
Project teams can be very effective at supporting one-off efforts, but with any regulatory change the bigger challenge can often be embedding the new processes into the business.
During implementation, focus is likely to be on hitting deadlines as opposed to ongoing management requirements, so firms need to recognise that changes may need to be supported for a period after the deadline to embed them along with the necessary controls.
Another key question is how firms will demonstrate compliance with the new rules. This is critical should the regulator knock on the door, but also to satisfy internal audit reviews. This should be set out upfront, and we encourage firms to map the regulation, their interpretation of the requirements, what they have delivered to satisfy that requirement, and the controls they have implemented to manage compliance on an ongoing basis.
A proactive approach is the key to success
Consumer Duty implementation presents significant challenges, but proactive steps can be taken to ensure you manage it successfully and deliver good customer outcomes. By properly understanding the scope of the rules and accompanying risks, ensuring you have a clear view of the customer, coordinating implementation across multiple business lines and functions, understanding your role in the distribution chain, demonstrating compliance and embedding controls, you can take significant steps towards meeting your firm’s obligations under the new rules.
