Consumer Duty: Benchmark your progress against our good practice pathway
Everyone is talking about the forthcoming Consumer Duty provisions, well certainly everyone who works in compliance. We have spent the last few months talking to firms across the financial services sector about what it means to them, where to start and their planned approach. Below we share our thoughts and a good practice pathway that can help you map the way forward.
Consumer Duty is going to have a material impact across your business, for help setting up your Programme, contact Kate@Avyse.co.uk.
Waiting for the reveal...
There is no doubt that this will be the FCA’s big summer blockbuster and will be everywhere. We’ve already seen the trailer and had the preview, so we have a fairly shrewd idea of what to expect when the final rules are published hopefully at the end of July. But how will firms react – will it receive five-star reviews or be a rotten tomato?
Joking aside, now is not the time to sit and wait for clarity. Firms who use this time to educate their Boards, management teams and staff, will benefit, making this step one on the roadmap to success.
Haven’t we been here before, why is this different?
The new Consumer Duty represents a fundamental shift in expectations for the way regulated firms behave and interact with their customers and is very outcomes focused. This is somewhere we have been before, and things didn’t necessarily go very well that time. Going back (quite a few) years, the regulatory approach was principles based with the expectation that firms would be able to interpret this and deliver good outcomes for customers, however many struggled with the lack of clarity and guidance on how to behave.
It seems we may have come full circle but this time the regulator appears much more joined up internally on their approach to implementation. We have seen firms receiving letters on the ‘use it or lose it’ permission initiative and clearly the FCA want to move quickly and decisively. We are also seeing firms seeking authorisation being subject to very detailed assessments of their business model, processes, and controls. From our perspective the FCA are prepared to play tough, you therefore need to be prepared and sighting a lack of guidance will not equal a get out of jail free card.
What should you do now?
There is no doubt that this is a wide ranging and potentially very intrusive set of requirements which will impact on every area of an organisation. The way in which a firm views Consumer Duty is reflective of their culture, and this is key. Firms with the right culture will want to embrace the opportunities, and challenges this represents because it should lead to better outcomes for customers which in turn should lead to a more ethical and sustainable business model. Other firms who regard this as an intrusive, no value added, compliance project could potentially find themselves having to justify their approach to the regulator.
The good practice pathway
With all the buzz then around Consumer Duty, what should firms be doing now? We see Consumer Duty as a pathway, and we would expect firms to be taking these initial steps now:
Step one: education and understanding
With culture in mind, we think it essential that senior leadership teams take the time and put in the effort to understand what the Consumer Duty is asking them to do. This is the time for firms to test their moral compass and ask some potentially difficult questions about their business model and the way they operate, and to do this successfully senior leaders need to understand what the Consumer Duty is seeking to achieve.
It is also likely that the firm will need to take strategic decisions along the way, so education should be regarded as an ongoing goal. Without a detailed understanding Board members and Non-Executive Directors will fail in their responsibilities to provide effective oversight and make the right decisions.
Step two: application
When thinking through the implications, firms will need to consider the application – what is in scope and how will it apply. There are lots of different strands to think about here, for example:
What is your role in the chain? Are you a manufacturer, distributor, or both? Do you have a direct relationship with the customer?
Do you have existing products and services which fall within scope? Will you also apply the requirements to products which are technically out of scope?
What sort of customers do you have? Are they retail or non-retail? How are you going to identify and differentiate, or do you want to differentiate?
How does this impact on any current projects you have running? Are you in the middle of a remediation exercise and if so, should you change your approach?
Step three: Governance
Once firms start to think about the potential implications and scope of Consumer Duty, they will start to see the complexity of this wide-ranging project. This then leads us onto our third step – good governance.
Senior management need to be engaged with the potential changes. This means they need to understand the breadth and depth of the changes required and ensure there is appropriate resource in place to deliver this. At a minimum we suggest that responsibility for the project is allocated to an individual of sufficient seniority. Ideally this would be someone at Board level, but this will depend on the size and complexity of the organisation.
Firms will need a good project manager. This should be someone who has the right access to key decision makers and can provide a proficient level of independent oversight and challenge. There will be lots of stakeholders to manage with potentially conflicting drivers so ensuring you have someone who is an effective communicator is also key. This is something firms should be putting in place now.
There is no getting away from Consumer Duty, the likely release date of 31st July 2022 is one to put in your diaries. This is something which is going to affect all regulated firms and whilst it can seem overwhelming, sometimes the best place to start is with the first step. So, we hope this helps kick start your thinking and if you would like Avyse to come along and take the first steps with you please get in touch.