As we enter the final stretch of preparations for the implementation of the new Consumer Duty (CD) regulation, the last thing the FCA can be accused of is not providing support. From a dedicated section on the FCA website, ‘Dear CEO’ letters for each industry sector, webinars, speeches and feedback in the form of the recent review of fixed supervision firms’ implementation plans, the FCA has been prominent in repeating its expectations and providing support for firms.
As Director Of Regulation at Worksmart, I work with both customers and our trade body partners on a range of subjects but, of course, CD and preparations for its implementation has been by far the most prominent issue over the last year. Through these interactions I have also had the opportunity to see what support the consultancies, law firms and Worksmart’s competitors are providing in support of the industry. This has enabled me to gain a wide-ranging view of preparations. Although no single person or entity has ‘perfect vision’ I do feel my position has given me privileged insight into what is happening at the coalface. In this blog I will try to summarise these insights into “lessons learnt” which I hope will provide some support to firms in these final preparatory months.
Four Things I’ve Learned
1. No Silver Bullet
I know it’s been said many times before, but CD is different to other regulation in that it is wide-ranging and encompasses the entire firm. Previous regulation has focussed on a particular area of the business, e.g. Training & Competence, or rulebook changes that have been focussed around a particular set of processes, such as DISP. With these pieces of regulations, firms could be ‘laser like’ in their focus, developing new processes, governance structures and supporting MI to demonstrate their compliance. SM&CR broadened the focus with its desire that firms address the firm’s underlying culture, not just specific processes related to SMR or Certification. However, in my experience, many firms simply focused on these processes and didn’t address underlying culture. By contrast CD is specific, it requires firms to focus on every part of their business that ‘touches customers’ either directly or indirectly. So, for most firms this encompasses pretty much their entire business and the FCA is specific about CD requiring a customer focused culture. This means there are no short cuts, no simple ‘one stop shop’ solutions, no silver bullet, and there’s no avoiding that.
2. Get Serious
There are lots of firms that are tackling the challenge of CD head on. This is laudable. However, I’ve seen as many that are displaying a range of what psychologists call avoidance behaviours, e.g. delaying, hoping the problem will go away, trivialising the issue, ‘reframing’ the problem so a rehash of old solutions can be used etc., are all examples of what is happening out there. CD is a flagship piece of regulation for the FCA. Indeed, you could go further and say that the new management team are using CD as a clear break with the past and their predecessors and want the industry to make a step change in its behaviour with consumers. If I’m right in my assessment of how fundamental CD is to the FCA and their new approach, not getting serious about CD is a very dangerous road for firms to take.
3. Not About Perfect
Within the group of firms who, according to the FCA’s recent review of implementation plans, were demonstrating good practice, there was multiple examples of wide-ranging, structured delivery plans with workstreams addressing the different consumer outcomes, deliverables and milestones for tracking progress. Despite all this good work, these firms have no guarantee that they will have ‘got it right’. However, they have embraced, rather than been hamstrung by, the uncertainty. The ‘mood music’ from the FCA is that implementing CD is not about being perfect. Rather it is about intent, combined with purposeful action designed to improve customer outcomes. It is unlikely even the most forward thinking, well-funded and well- resourced projects will get it 100% right. Life is simply not like that. However, like my previous point, getting started with good intent and purposeful action is better than prevarication or delays in an attempt to develop the perfect implementation.
4. Beware The Post Project Dip
To be honest, my final point is less about what I’m seeing at the moment and more about what I have seen over my thirty years in the industry. In my experience, major transformation programmes like CD are impressive in mobilising and delivering change. However, they disband very quickly after the implementation date, often leaving a trail of unfinished business, i.e. deliverables not achieved because or time or cost overruns. I expect CD will be no different. And because MI is often the last thing to be specified and delivered, it is prone to becoming a piece of work that either gets diluted in its final state or put into the category of ‘phase two’. Whilst this is acceptable in many projects, if MI is in the list of things not fully achieved as CD project teams disband, it risks being a disaster for firms. High quality MI on how firms are delivering better customer outcomes is pivotal to firms’ compliance with CD. Without high quality MI feeding into dashboards, the governance structures set up to monitor firms’ performance will be ‘flying blind’. My advice, therefore, is to get involved in project plans and lobby hard if it looks like MI is at risk of being delivered in full by 31st July.
And focusing on MI, no doubt your firm will be well progressed in planning to gather the MI required to monitor compliance with CD. However, our experience shows that many firms have clear gaps in their MI and reporting suites that are leading them to review their current tech stack and suppliers. If that includes your firm, then it is not too late. Our RegTech suite covers many of the data points (FG22/5, section 11.33) suggested by the FCA to monitor compliance with CD. Of course, if you know what your MI gaps are, give one of our team a call to discuss how we can help plug them. And if you are not sure, or just want to check, one of our experienced team will take you through a structured discussion to identify the outcomes measures your firm already has in place and what gaps currently exist. Once understood, we will recommend a solution that uses your existing data and blends it with Worksmart’s functionality to provide you with a range of customer outcome metrics, a dashboard, that will give confidence that your firm is complying with both the spirit and as well as the letter of Consumer Duty.