For much of the last two years most of the UK’s consumer-facing financial organisations were racing to ensure that they were compliant with the new Consumer Duty rules by the 31st July 2023 deadline.
Many firms will not have achieved everything they set out to do, and most of those that did will have ‘day 2 plans’ specifying future phases of work to address outstanding gaps between their product and service offerings and the Consumer Duty principles.
So, the journey doesn’t stop here. Instead, the challenge is now how you embed Consumer Duty into ‘business as usual’ operations across your organisation. This is likely to require much the same focus that was needed for the initial implementation programme.
A poll of over 70 financial services professionals recently carried out by BeyondFS found that for 15% of organisations, embedding the Duty is seen as a major compliance challenge. What’s more, only 16% are fully confident that without further work their organisations will continue to be compliant in 1-2 years’ time, with 28% either uncertain or having no confidence whatsoever that compliance will be maintained without further intervention.
The issue is clearly of importance to the FCA, who announced that they will invest an extra £5.3m on tracking, monitoring and ensuring that the Consumer Duty is properly embedded
Putting the building blocks in place
So how should you embed Consumer Duty across your organisation’s culture and practices?
Broadly speaking there are two stages.
- Setting up appropriate processes and structures that build Consumer Duty into the fabric of the business.
- Ensuring that performance is continually monitored, and momentum maintained as time goes on.
Performance dashboards or balanced scorecards, designed specifically with customer outcomes in mind, should be in place to enable visibility and oversight of performance against the regulations. This will help determine when and how the organisation is going off track and identify where corrective action need to be taken.
You should be seeking evidence that the changes you have made for the Consumer Duty are having the impact you intended, and that you can identify situations where there are poor customer outcomes or risk of harm. Cancellations and complaints are obvious areas to focus on, as you will already have historical data to use as a baseline. The FCA’s expectation is that firms will become more sophisticated in their analysis of customer outcome data over time, enabling them to drill down more easily into the root causes of problems.
Ownership is key
Just as important is the need to decide which forums have oversight of which metrics and ensure that they meet regularly and take necessary actions in good time when performance drifts off target.
Each metric relating to the Consumer Duty needs to be owned by a specific individual who is senior enough to take the lead in ensuring performance against the agreed measures. Pre-agreed checkpoints and reviews, periodic attestations by responsible individuals, and clear reporting lines will all help the organisation stay on track.
Education about the requirements of the Consumer Duty can be built into training and professional development, tailored for relevant roles, and both specific responsibilities and a general requirement to act according to the Consumer Principle and cross-cutting rules, can be added into job descriptions and performance objectives.
The FCA has highlighted several areas where the Duty can be embedded across functions and grades, including linking renumeration to measures related to Consumer Duty, assigning business owners or champions for Consumer Duty at all levels and functions, and tracking annual attestations around Consumer Duty compliance
Policies and procedures that have been amended in accordance with the Duty can serve as guardrails to steer the activities of operational teams, project teams, and oversight teams, so they work together in a unified and consistent way. Documenting these policies will help other stakeholders, such as audit functions or the Regulator, to understand and challenge the approach and on-going adherence to the Consumer Duty rules.
Make it the board’s baby
To ensure successful results over the long term, a board and governance engagement plan should be created, with the Consumer Duty added as a standing board meeting agenda item.
When engaging the board, it helps to:
- Use a clear and concise communication style to ensure that the board understands the programme at right level of detail, so that they can drive its direction.
- Provide regular updates that include information on the risks and challenges, as well as the progress that has been made.
- Seek the board’s input on key issues and decisions. This will help ensure that the programme is aligned with their priorities.
- Consider deep dives with Executive Directors, Non-Execs and key stakeholders, particularly before item approvals or discussion papers.
Compliance can be a competitive advantage
Embedding Consumer Duty should not be seen purely as an administrative burden. It can become a competitive advantage for your firm.
For example, we have heard of distributors of intermediated products complaining that some manufacturers have not provided them with the information they need to fulfil their requirements under Consumer Duty. This is a great example of how manufacturers can turn Consumer Duty compliance into a competitive advantage. If distributors don’t get the information they need, they are likely to switch their allegiance to manufacturers who offer clarity about how their products meet the Duty and who provide the right information in good time.
Consumer Duty is here to stay, so it will benefit organisations to ensure that sufficient time and resource is devoted to embedding it throughout their business for the long haul.