On 31st October 2022, we kicked off an exciting three-part webinar series on the FCA’s Consumer Duty with our first instalment.
We partnered with BSA and TCC to launch our new webinar series on all things Consumer Duty. Our first of three sessions, ‘What is Consumer Duty compliance, and why do I need to take action now?’ offered an insightful guide to the FCA’s Duty.
The panel of Duty specialists was hosted by Recordsure’s Programme Manager, Adeline Han and featured Garry Evans, Chief Product Officer at Recordsure, and TCC’s Consumer Duty expert and Associate Director Neil Dethick.
During the session, our specialist trio broke down the whats and whys of the new rules. We delved into why it’s so important for firms to take these increased consumer care standards seriously – and of course, gave some actionable tips on how you can show the regulator you’re really doing your bit.
So what were the main takeaways?
The Consumer Duty: what’s all the fuss about?
As well as being spookiest day of the year, financial services firms will know that 31st October 2022 marked the first significant milestone on the FCA’s Consumer Duty roll-out. From this point on, businesses need to have their implementation plans finalised, Board-approved and ready for inspection by the FCA.
In other words, firms should have decided by now how they’re going to align their compliance strategy and internal processes with the new regulations. And they need to have answers to basic consumer-centric issues like what a ‘good outcome’ looks like for their customers – and by extension, how this can be reliably measured and evidenced.
Businesses now have until 31st July 2023 to ensure their new and existing products and services are compliant with the Duty’s standards. And then until 31st July 2024 to ensure the same for their closed products and services. This means firms need to be looking very closely at their portfolio and make changes or adjust processes if necessary.
As the Consumer Duty covers almost every aspect of the business lifecycle, right from product design through to client interactions and complaints handling, getting it right long term is going to need a thorough consideration of your approach to customer care at each of these stages.
Point 1: The Consumer Duty isn’t just business as usual – no matter how diligent you’ve been before
It’s true that most businesses already think they’re doing right by their customers. But the reality is that the old guidance many firms are still working to, and the new requirements the FCA has laid out under the Consumer Duty, translate to two very different standards of care.
For instance, the FCA has reported that it commonly finds information being presented in a way that’s misleading or difficult for many consumers to understand properly. Products and services that either don’t offer fair value for money or otherwise offer little in the way of tangible benefits are still being sold to customers.
And it’s exactly these types of issues that the new rules are looking to address. Indeed, far from just being Treating Customers Fairly (TCF) with a new coat of paint, the Consumer Duty signals a new approach to delivering good outcomes and aims to put customers at the heart of every decision that gets made within financial services.
Far from just being Treating Customers Fairly (TCF) with a new coat of paint, the Consumer Duty signals a new approach to delivering good outcomes and aims to put customers at the heart of every decision that gets made within financial services
But not only that: it’s also the clearest statement of intent we’ve had so far regarding the FCA’s shift towards a more proactive, ‘assertive supervision’ model of regulation.
Point 2: The Consumer Duty isn’t just TCF by another name – and business leaders need to get onboard, sooner rather than later
Put simply, it can’t be stressed enough how the Consumer Duty and TCF are completely different initiatives – both in scope and in structure.
For one thing, TCF primarily took the form of principles-based, best-practice guidance meant to help businesses achieve positive results for their customers. The Consumer Duty, meanwhile, is backed by a rigid set of enforceable rules – and so there’ll be much less regulatory wiggle room this time around.
Unsurprisingly, then, the duty will place much more emphasis on outcomes than previous FCA agendas. It’s also backed by strict monitoring and testing requirements – alongside enhanced oversight responsibilities for Boards – to ensure good outcomes are consistently delivered and that firms are continuously taking positive steps towards improvement where needed.
Beyond that, the Consumer Duty marks a step up in terms of governance standards, meaning senior managers and executives will be responsible for maintaining compliance – and directly answerable for what goes on under their watch. At the end of the day, when it comes to outcomes and obligations, the Board and management teams will be accountable for the Duty compliance come August 2023.
These higher standards are also reflected in the new Conduct Rule 6 – mandating firms to ‘act to deliver good outcomes’ for customers – which in layman’s terms means it’s no longer enough to simply do no harm. Under the Consumer Duty, firms, including mortgage providers, must be proactive in making sure consumers receive the best possible results from their products and services, while monitoring and evidencing the conversations.
Point 3: There’s a lot of work to be done (and not a lot of time to do it!)
While every firm will inevitably have its own strengths and weaknesses when it comes to getting Consumer Duty ready, our conversations with clients have revealed a few common areas of concern.
First and foremost, Price and Value outcome: what constitutes fair value, and how can this be quantified? The duty’s focus on proportionality means firms will have to take another look at their charging structures – and this will be extra critical in cases where they’ve charged flat fees until now.
As a quick example, take a 10% flat rate on a mortgage. This would cost £10,000 for a £100,000 loan but exponentially more for a £1m loan – under the new rules, this becomes extremely difficult to justify without proving the larger mortgage required your staff to complete 10 times the work.
Consumer Understanding outcome, meanwhile, has also been causing some headaches. Because for starters, how can firms be sure their customers genuinely understand the information presented to them? How can this be accurately tested, and how often should these audits be carried out? And finally, given that customers’ financial situations and priorities change over time, how far should businesses go to ensure their customers still grasp the implications of their long-term arrangements?
What’s more, some firms are struggling to grasp how they’ll increase their monitoring and supervision to fit the lofty new standards.
For instance, what kind of MI is needed for these new checks? How can this data be compiled when we need it? How much can we rely on it to tell the whole story? What kind of processes and compliance tech firms need to address the gaps in conversation monitoring and evidencing?
And on a more fundamental note, how can the lessons learned translate to effective policy or process change?
