Consumer Duty at One: How to avoid the terrible twos

Today (31 July 2024) marks the one-year anniversary since the Consumer Duty came into force and the first annual reporting deadline for consumer duty reports.    

While firms may feel a sense of a relief that the first inaugural annual report is now completed and the closed book deadline has passed, it is perhaps safe to say that the work is far from done. 

In this blog, we highlight the top five areas that firms are still struggling with 12 months on… and where they should be focusing their efforts over the next 12 months. 

1. Know what good outcomes look like for your firm

Across the industry, while many firms have focused on the four outcomes, they have missed a crucial initial step in implementing the Duty – the defining of “good outcomes”. As a result, this lack of focus has resulted in MI governance packs and Annual Reports containing limited insight into actual outcomes that are being delivered. 

Questions such as "What are other companies doing?" and "How are they determining their benchmarks?" are common. However, the worry of deviating from the norm or setting standards too high has prevented firms from truly grasping the essence of 'good outcomes' for themselves and their clients. It is essential that you establish clear definitions and benchmarks for 'good outcomes' which in turn reflect your commitment to good outcomes for your customers. Given the principles-based nature of the regulation, it is likely that good outcomes will differ across firms based on their business model, size and customer base. Furthermore, many firms are still on this journey and therefore what they may have initially perceived to be a good outcome today may change in the future. 

And so, in our view, apprehension of deviating from the norm or excessive concern about gold plating is likely to be counterintuitive to the spirit of the Duty.  

What does good look like for each of your products and services?  

2. Don’t forget the cross-cutting rules

In our experience, firms have focused on the four outcomes, such as the quality of products and services and ensuring fair pricing and value. However, it’s imperative to remember that these elements are intrinsically linked to the overarching cross-cutting rules. Namely, firms must act in good faith towards retail customers, proactively avoid foreseeable harm, and empower them to achieve their financial goals. It’s this holistic approach that will determine the firm’s success in meeting the new consumer principle. 

How are you evidencing compliance against the cross-cutting rules?  

3. Getting the data right 

It is no surprise that MI is the single biggest challenge for most firms. Regardless of the size and sophistication of the firm and their data transformation programmes, 12 months on, data challenges persist.  

The availability of good, robust management information is crucial to evidencing good outcomes and provide the necessary assurance to senior management.  

The FCA has said from the outset that data and MI is likely to be an iterative and ongoing issue and therefore even where a firm feels it has started to get the data right – it should continue to check and challenge the MI it is using to demonstrate the delivery of good outcomes.  

From identifying the right metrics to ensuring tolerances are appropriately set – you should on a regular basis ask yourselves whether the data you are producing is driving the outcomes you are seeking. 

A common mistake with firms is how they present their data to the relevant governance forums or within their annual boards. It may be tempting to throw every metric you have into a dashboard to show how sophisticated your reporting is, but this can be counterintuitive. Insufficient data may indicate poor governance, control, and oversight within a company, while an excess of data can obscure genuine risks. 

A well-curated MI system not only signals robust governance and oversight but also equips decision-makers with the insights needed to navigate risks of poor outcomes and capitalise on opportunities to continuously deliver good outcomes.  

How do you get assurance that committees are receiving the appropriate level of consumer duty MI? 

4. Embracing and embedding the Duty as a driver for positive change 

Implementing cultural change in a firm, particularly one driven by regulatory change, is indeed a challenge. The Duty's principle-based approach sets it apart from the previous era of TCF and conduct risk by requiring firms to interpret and apply its principles in a manner that is both reasonable and proportionate to their businesses. This flexibility is, however, a double-edged sword; it allows for tailored implementation but also demands a higher degree of engagement and understanding from all levels of staff. To transcend mere tick-box compliance and truly embed the Duty into the fabric of your firm, a shift beyond procedural adherence to a genuine focus on good outcomes is therefore critical. It's not just about fulfilling minimal training requirements; it's about embedding the principles of the Duty into the daily practices and mindset of every team member. Success measurement should be ongoing and multi-dimensional, capturing not just adherence to rules but the spirit of the Duty—its embodiment in everyday decisions and interactions. Senior management's role is pivotal in this transformation, not only in setting the tone but also in ensuring that the desired culture permeates to the grassroots level of the firm. It’s about creating an environment where staff are not just following rules but are empowered and motivated to deliver good outcomes as a natural extension of their work ethos. The journey is long, and the 'hard yards' are necessary, but the result is a resilient, customer-centric culture that stands the test of time and regulation. 

How has culture changed since the implementation of the Duty and what more is left to do? 

5. Reflecting on the lesson learned from the first Annual Report 

Finally, for most firms the inaugural Annual Reports and attestations are in, and it's time for a well-deserved summer break! While it may be tempting to take a long break from reviewing any more reports, the post-submission period is a prime opportunity to reflect on your initial submission and conduct a 'lessons learned' exercise to identify successes and areas for improvement. 

It is worth remembering that the Annual Report is more than a formality; it's a chance to assure your leadership of your progress, including successes and setbacks and narrate your journey. It is an opportunity to reflect on your future strategy and be honest about the challenges ahead and how you as a business remain steadfast on the delivery of good outcomes. Many of the reports we have seen have either focused too heavily on the qualitative narrative with little evidence to support claims made or the reverse i.e., an abundance of quantitative data, so much so, that the narrative becomes convoluted. It is important to remember, that this report is a valuable tool which is designed to help firms reflect, focus, and retune to the objectives of the Duty on an annual basis.  

What are the lessons learned from the submission of the first board report?