The introduction of the Consumer Duty regulation by the Financial Conduct Authority (FCA) was the biggest regulatory change to the wealth and advice market since the Retail Distribution Review (RDR) in 2012, says Carl Woodward, joint founder of Simplify Consulting.
According to the FCA, the Consumer Duty was a ‘watershed’ moment in financial regulation – the UK watchdog had signalled a move towards a stricter framework for a long time. Consumer Duty is a lengthy piece of regulation aimed at tying up the advice value chain – but implementation was difficult for firms in the industry as the FCA’s guidelines were open to interpretation.
This left firms in a difficult position to know whether they were Consumer Duty compliant last July. Having worked with many firms looking to understand the Consumer Duty requirements, here’s what we’ve learnt:
Adapted
The Consumer Duty regulation was as powerful as its RDR predecessor – which meant that firms were in need of adapting to its demands.
Many firms have invested significant effort and energy in reviewing policies, procedures and customer interactions to ensure they are complaint.
We should not underestimate the effort that has gone into this and undoubtedly changes have been realised that are delivering improvements. Neither should we assume that the work is finished though, and this will be an ongoing effort to continue to enhance compliance and strive towards consistently achieving positive client outcomes.
We are definitely seeing a more robust approach from the regulator and where the service model and product design remain explicitly inconsistent with the spirit of the Consumer Duty, we can expect some organisations to be held to account and potentially made an example of by the FCA.
Fines and punishments will not be out of the question for the regulator in the future.
Help
There’s been a lot of enquiries and questions surrounding Consumer Duty best practice.
We have been asked to ensure firms’ process designs are consistent with the regulations and to help transform where deficiencies are identified.
The industry has also been pushing to improve how customer interactions are customer oriented, how service level agreements with outsourcers are designed with the customer in mind and how vulnerable customers need to be considered.
When it comes to the Consumer Duty, the devil is in the detail. It’s only when you really drill into each interaction with a customer and start obtaining feedback that you truly understand where the gaps are and where work needs to be done.
It’s not always easy for organisations to take a step back from business as usual and look at how their services, products and propositions are designed with that lens on the customer, which is where firms are seeking help.
Where we’ve seen success is in those organisations really challenging how they think about the customer from front to back office. Those putting the customer at the heart of their proposition are transforming every facet of their business and that can only be a positive.
Improving areas
One key improvement for firms is that we expect them to look beyond their own business in ensuring compliance, but also look at their dependencies upon third parties and how their contractual arrangements with them are consistent with the spirit of Consumer Duty.
We already know from the Operational Resilience regulatory requirements that looking at external dependencies to ensure continuity of service during incidents is crucial; but this extends into business as usual as well. We expect firms to look at how they contract with third parties, oversee and manage relationships and measure performance in such a way that customer outcomes remain at the forefront of the design and execution of those relationships.
That could be with IT providers, service providers, outsourcers, partners, etc, who all play a key role in helping an organisation deliver a service and therefore an outcome to customers. We expect firms to look at their processes with that lens of third-party dependencies and to determine whether service level agreements that represent quality and timeliness expectations are aligned to customer expectations while remaining commercially viable.
True end-to-end analysis of customer outcomes and mapping those third party dependencies is key to ensuring that there is a holistic approach to compliance.
Long-lasting impact
The Consumer Duty regulation has already shown it will have a long-lasting impact. This is largely because of the response to it and the positive changes companies are making.
The standard question is: what is the future of FCA regulation post-Consumer Duty?
I believe there will be more direct, more targeted and more focused regulation that really represents what the customer wants and needs.
But equally there will at some point need to be an assessment of how companies meet the regulations in an affordable and commercially viable way.
Ultimately, we cannot burden businesses with more red tape and regulation without providing efficiency enablers and without recognising that profitable businesses are to the benefit of everyone.
By Carl Woodward, Joint Founder of Simplify Consulting
