Standing at the vibrant Brighton Palace Pier, contemplating my next move – should I brave the exhilarating Turbo Coaster or opt for the twisty adventure of the Crazy Mouse? Like these rides, firms have probably experienced many twists and turns, dips with a dash of loop the loop during their Consumer Duty implementation journey, the final destination being 31 July.
There have been mixed reports on how Consumer Duty (the ‘Duty’) ready firms are. Still, it is essential not to be complacent or give over to status quo bias without being able to prove there has been due consideration to the Consumer Duty requirements. Over the last 12 months, financial firms have focussed a lot of time and effort towards meeting their Consumer Duty priorities by 31 July. The Duty is now in force with firms needing to shift their focus towards complying with the rules for closed products by July 2024, and many firms will be addressing any remaining work from the implementation phase, such as:
- Measuring and reporting on customer outcomes – the opportunity to enhance the process of measuring and reporting on customer outcomes, ensure calibration, and stress test identification of gaps in data and MI. The aim is effective identification of potential harm to clients and comprehensive coverage of all four Consumer Duty outcomes. This approach also allows firms to monitor vulnerable clients and assess the firm’s consumer duty culture. This also leads to informing the Board’s annual self-assessment and showing the extent to which, the firm provides good outcomes for its customers.
- Applying the client communications testing framework – most firms should have identified their key client communications across the client journey (including the firm’s website) and then prioritised for testing according to set criteria, such as potential harm to clients. The approach and criteria applied should be consistent, and more importantly, firms should have their client communications testing framework documented, evidencing the approach. Firms should have completed or are in flight with their testing, ensuring any shortfalls found in the client communications are remedied in a timely manner.
- Implement client journey changes – firms are expected to have documented their client journeys, identifying the pain points, potential risks, and areas for improvement in the client experience (including for clients with characteristics of vulnerability). If not already in progress, firms should be addressing the recommended enhancements to processes; prioritising and passing them to the firm’s project management team for consideration and project planning, so that the actions can be tracked to completion. Also, consider data and MI that can be collected as a result of these process changes to measure the effectiveness of the changes.
- Launching processes to monitor value for money – For many financial services firms, the Duty has required them to produce the first iteration of the value assessment for their services offered to retail customers.¹ Firms should have an established process for assessing value and should ensure that the framework is documented, noting that the process must be followed for the initial development of any product and at any time significant changes are made. Firms are expected to also review their value assessments regularly, so they should have these scheduled, giving themselves sufficient time to perform all the required actions. It’s not just about benchmarking costs but also that firms are monitoring the value of the product and services against what the client is experiencing.
- Aligning targeted Consumer Duty training and competency programmes – Most firms have issued general training covering Consumer Duty, Principle 12, the new conduct rule, cross-cutting rules and the four outcomes. If not done already, firms should now be creating tailored training for roles within the firm and aligning their competency framework to ensure they understand their responsibilities while equipping them with the skills to provide customer care while adhering to the Consumer Duty obligations.
- Document information sharing processes – Manufacturers of products have already communicated to distributors the results from the review of the arrangements in accordance with the four Consumer Duty outcomes. Information sharing is not one sided, and now there is an obligation for distributors to share information with manufacturers upon request, as well as alerting manufacturers if products and services have been identified as not providing good outcomes to their customers. Whether you are a manufacturer or distributor, there should be a process in place for making and receiving information requests, which is documented, and best practices would be to have a central point from where these requests are managed.
- Oversight and responsibilities are reflected in governance and SMCR² documentation – Firms should have reviewed their board and committee terms of reference and supporting documentation, including stating items in agendas, to ensure they capture Consumer Duty oversight. SMCR documents should be updated to reflect any new responsibilities relating to Consumer Duty, such as SORs (Statements of Responsibilities), role profiles, and responsibility maps, more importantly, ensuring that senior managers’ reasonable steps are documented to evidence that their area or responsibility is controlled effectively.
A useful guide for firms is to test their implementations against the 10 key questions published by the Financial Conduct Authority (FCA) in June 2023 to determine adherence to the Duty. Firms can then move on to the 39 key questions for firms contained in the Consumer Duty finalised guidance at the end of chapters 6 to 10. This would fully prepare a firm with a more detailed view of how these questions would be addressed if the FCA conducted a supervisory visit or sent industry-related questionnaires.
Remember that the FCA’s stance on evidencing any changes, decisions made, and approaches being taken is to document, document, document – if it’s not written down – it hasn’t happened.
Overall, whether firms believe that business readiness plans are in place to meet the Consumer Duty requirements, it doesn’t stop at the implementation deadline, it’s an iterative process. Firms should continue activities to embed Consumer Duty to ensure it becomes business as usual and they meet customer needs.
At this juncture, we recommend that firms pause and reflect on their Consumer Duty implementation activities. We have supported our clients with independent health checks and found that our clients have found this very helpful in identifying gaps or providing independent assurance. If you would like to discuss any of the points in the article or any other areas concerning Consumer Duty, please feel free to contact us.
Read more about Davies’s expertise in Consumer Duty
¹ Whilst manufacturers of products, such as fund managers and insurance firms, have been producing value assessments since 2019, but the Duty expanded this obligation to include any UK financial services firm providing a service to a retail customer, capturing financial advisers, wealth managers, platform providers, insurance brokers, and credit brokers.
² SMCR refers to the FCA’s Senior Manager’s and Certification Regime which aims to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. It applies to banks, building societies, credit unions, PRA-designated investment firms, insurers and all solo-regulated firms except benchmark administrators.
