In a speech delivered at a November 2023 event, Ms Arora emphasised that the work to embed Consumer Duty has only just begun; that it is not a ‘once and done’ exercise and – in order to continue to see the benefits – everyone needs to ‘keep a foot on the gas’.
As expected, ‘Consumer Duty will remain a top priority for the FCA in how they make financial services markets work well’, says Ms Arora, as the FCA reinforce that they have positioned Consumer Duty as being ‘central to their transformation to becoming a more assertive regulator with an enhanced focus on how they use data’.
Whilst Ms Arora did acknowledge some good practice seen in the industry, it was reiterated that a great deal of work still needs to be done by firms to demonstrate a clear move away from tick-box approaches to Consumer Duty compliance and to genuinely embed the regulatory change into culture.
Ms Arora also outlined the gulf between firms who are meeting expectations from those who are not, explaining: “Firms who have met our expectations have embraced this shift. Some have aligned their purpose and values to delivering good consumer outcomes, updating internal cultural and training materials to reflect this. And some have reviewed reward and incentive structures and performance management frameworks to ensure they reflect and support delivery of the Duty.”
The Duty isn’t something where you can tick the Consumer Duty box on your to-do list and move on. It’s something that needs to become part of who you are as a firm, your culture, and how you do business, running across your whole organisation from Board to front-line delivery, from product design to communications and customer support.
Nisha Arora, Director of Cross Cutting Policy and Strategy at the FCA
In addition to work that is focused on tackling the greatest harms and areas of concern in different sectors, the FCA want firms to proactively ensure that problems that consumers face across multiple sectors are also being addressed, including:
Rachel McGann, Training Specialist at LV=, discusses how Clever Nelly has improved frontline employee competency to improve customer outcomes, reduce complaints and significantly increase vulnerable customer understanding.
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Improved employee competency by 42% for customer vulnerability.
Improved service levels, with Clever Nelly contributing to a 62.5% reduction in complaints.
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The FCA have stated that Consumer Duty is not a ‘once and done’ exercise. Your actions, assessments, testing, and evidence need to be continuous.
It is critical that Consumer Duty is not just seen as a compliance exercise but one that creates a shift in culture throughout firms – a shift in culture that endures.
Firms need to make sure they are assessing, testing, understanding, and evidencing the outcomes customers are receiving – on an ongoing basis.
Firms that are focusing on the outcomes they are aiming to deliver have identified the data they need to measure and monitor that these outcomes are delivered. The FCA have said that where firms are not meeting expectations, it is often because they are simply repackaging existing data and have not thought seriously about what information they would need to really understand consumer outcomes.
The FCA stress that firms who have not considered how they will monitor outcomes for different groups of consumers – including those in vulnerable circumstances – will need to do more to meet their expectations.
The work you carry out should enable you to ensure and evidence that you’re delivering good outcomes – and to highlight where there are poor outcomes. Where you identify poor outcomes, you need to take appropriate action to rectify the root causes.
The FCA wants to see firms learning and improving continuously. If you have not looked in detail at your customers’ experience, and aren’t monitoring outcomes for customers including different groups, an ongoing basis, the FCA have stated they will be ‘doubtful’ that you’ve got to grips with this.
An early area of focus for the FCA’s assessment of Consumer Duty will be to look at firms’ complaints data, identifying where the Financial Ombudsman Service uphold high numbers of complaints. The regulator has stated they want to hold firms to account for dealing with complaints fairly and to ensure that firms have robust mechanisms in place to learn from the root cause of the complaints they receive.
As they have previously stated, the FCA’s supervisory and enforcement approach will be proportionate to the harm, or risk of harm, to consumers. Where they discover problems, they will prioritise the most serious breaches and act swiftly and assertively. Firms can expect the FCA to take robust action, such as interventions or disciplinary sanctions where needed.
At the time of the speech being delivered, it has now been three months since the 31 July deadline – so what's next?
From 31 July 2024, Consumer Duty will also apply to closed products and services, with some differences in how some elements of the regulation will apply. The FCA have said they do not expect firms to consider the target market and distribution strategy for products that are no longer on sale. They will, however, still expect you to consider if closed products and services could lead to foreseeable harm or frustrate customers pursuing their financial objectives. They have emphasised that firms need to start the work for the 2024 deadline in good time to make sure you are prepared and on track.
Firms need to make sure – and be able to show the FCA – that you’re delivering good consumer outcomes. This will include your implementation plan, data and monitoring, your internal assessments, and how you are preparing for the closed products deadline.
Review your implementation plan and check you’ve made the changes you set out to make. Then ask yourself whether these changes go far enough. Make sure you are focused on whether you are delivering the outcomes you set out to achieve for the consumers in your target market, especially for customers with characteristics of vulnerability.
Think about how you’re going to harness the information you have to improve your products and services and evidence the outcomes you’re achieving for your customers. Ask yourselves whether there is any data you are missing and you need to capture to test and challenge yourselves that you are achieving and supporting the facilitation of the right outcomes.
As the FCA set out in their rules, at least once a year your board, or equivalent governing body, must review and approve an assessment of whether your firm is delivering good outcomes for your customers.
What to include: this assessment should include the results of your monitoring on whether your products and services are delivering expected outcomes in line with Consumer Duty – and any evidence of poor outcomes.
Before signing off: your board, or equivalent governing body, needs to agree the actions required to address any identified risks or poor outcomes and agree whether any changes to your firm’s future business strategy are required.
Why getting it right is important: this assessment will be part of the evidence the FCA use to assess a firm’s ongoing compliance with Consumer Duty. You’ll need to be able to provide it, and the management information that sits behind it, on request.
Consumer Duty is now an integral part of their approach and mindset at every stage of the regulatory lifecycle – including authorisations, policy development, supervision, and enforcement. You can – and should – expect it to be a golden thread that runs through all your conversations with them.
Expect to be tested: in the coming months, the FCA have stated they will continue their work across all sectors to test firms’ implementation and embedding of Consumer Duty. The regulator recently concluded their second survey measuring small firms' embeddedness of the Consumer Duty and they are planning a third survey in the new year to look at – and address – issues of concern.
Learn from the FCA’s areas of focus: the regulator has sent out letters identifying key issues for firms to consider in each sector or portfolio. These include:
General insurance: the regulator made it clear that they expect firms to ensure that customers are at the centre of the claims process, so that unreasonable delays to claims processing are avoided and fair claims settlements are made.
Consumer finance: the regulator highlighted that they are looking at some of the products and services provided in the second charge mortgage market. Here, they want to know if, under Consumer Duty, customers are getting fair value. This includes whether fees are representative of the costs incurred by the brokers and lenders.
Ian Scaife, Group Head of Compliance at Clifton Asset Management, discusses how Clever Nelly has “completely changed” their approach to employee Training & Competence, enabling them to respond quickly to FCA regulatory requirements, strengthen frontline capability and embed Consumer Duty.
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Ramped up speed-to-competency in six critical training categories, resulting in a 31% average improvement.
Improved key training areas required under Consumer Duty, including vulnerable customers – resulting in a 36% improvement in employee understanding.
Support them to evidence a quicker, more robust approach to FCA initiatives using real-time data and MI.
Moneybarn’s Strategy and Transformation Director – Dan Thompson – discusses how focusing on the competence of their people has resulted in reductions in average handling time, wrap time, hold time and improvements in customer outcomes – generating them 300% ROI from deploying Clever Nelly in under six months.
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Supported Moneybarn to improve customer outcomes by 9%.
Improved key customer support metrics, including a 4.5% improvement in Average Handling Time and a 38% reduction in Average Hold Time.
Generated them a 300% return on their training investment in under six months.