Consumer Duty: What Will Be The Key Challenges For Firms?

In my first blog, I talked about the fact that the incoming CD regulation presents firms with a major and new type of challenge when responding to regulation. To recap, firms have responded to previous regulation with new or amended policies, frameworks, procedures and governance arrangements. This approach broadly worked because the regulation addressed a specific issue / part of a firm’s operation, e.g., complaints handling or training and competence. The recent SM&CR rules were broader, indeed the FCA talked about SM&CR being about culture change, not just a set of new responsibilities and governance framework (senior managers) and competence (certification). And whilst some firms actively took this challenge on and used SM&CR to stimulate culture change, many simply reverted to type, stopping at creating a governance framework for senior managers and an updated set of processes for evidencing competence. Repeating this traditional approach is unlikely to work if CD is to deliver what the FCA expect.

For me, the reasons are twofold. Firstly, CD focuses on customers outcomes and so requires (for some organisations) a huge change in the way they approach their products and services. Secondly, as CD is outcomes focused, firms will need to gather data on the consequences of their actions, not simply the actions themselves. These two factors require new approaches and with new approaches, new challenges emerge.

Although not exhaustive, from reading and talking with customers and our trade body partners, I have identified six challenges that firms need to face and find answers to:

1. Mapping: The nature of the first challenge will depend on whether the firm is a manufacturer, distributer or both. Manufactures will need to map the end-to-end product design process, from initial research, to design, market positioning, pricing and after sale support. Distributers will need to map the product design and customer journey from initial interest, through the sales process and after sale support through to product maturity / termination.
2. Metrics / Data: Once mapped, firms will need to consider at what points they will measure ‘customer outcomes’ in these processes or points on the journey before considering what data they will need to collect, from who and how. Finally, firms will need to consider how often they will gather this data and how they intend to analyse and interpret the data. Firms will also need to consider how they will integrate this new data in their current dashboards. Finally on this point, firms need to satisfy themselves that the data they are collecting will enable them to identify and prevent potential problems before they occur, rather than remediating post event.
3. Oversight: CD uses phrases such as ‘‘price and value’, ’acting in good faith’, ‘consumer understanding’ and ‘preventing foreseeable harm’. These terms are subjective, and as such, open to interpretation. Therefore, CD will require firms to have some oversight in place that can interpret the collected data to make decisions about whether the firm is achieving what the new rules intend. Not only that, but for teams that will be responsible for oversight may need practical support and further development of skills in order to fulfil a role where an outcomes-based focus is required, e.g., Internal Audit teams.
4. Accountability: Inevitably, processes such as the ‘customer journey’ cut across the entire firm, spanning functional boundaries. Consequently, when mapping, firms need to assign accountability for each part of the journey, including the senior executive responsible. A second task in this area will be to decide which NED will be assigned the ‘CD champion’ role and how the firm can evidence that CD is an active dialogue between this NED and the firm’s CEO and Chairman. A final factor in delivering true accountability will be the often overlooked, but critical task of delivering training to every individual about the incoming CD requirements, and what this means in the context of each individuals’ role.
5. Integration: CD is being implemented into a ‘cats cradle’ of existing regulation that firms are working to manage, which will be a challenge in itself, but one that won’t necessarily be insurmountable. Firms will need to consider how CD affects existing regulation that is already in play. Those responsible will need to consider the higher standard demanded by CD and what this means in the context of a firm’s current approach.  As the FCA have identified, many firms may already be meeting the standard, but many won’t and as such, there are many regulatory points to consider. This is not all ‘downside’ as firms’ responses to existing regulation could be helpful in developing datasets for monitoring CD once expanded to be more fully focused on outcomes, e.g., complaints about a product/service, upheld complaints, root cause analysis etc.  
6. Supporting Customers: In addition to firms being required to deliver a higher standard of care and protection, CD also requires firms to act positively to equip consumers to make better financial decisions. Like customer journey, firms need to consider what they are doing to actively support this part of the regulation. And again, firms will need to map, monitor and interject to ensure positive support is being achieved.

Because CD is an integral part of the FCAs intention to be a more data-led, proactive regulator, and because the FCA is investing heavily in developing a dataset where it can identify potential ‘outliers’, i.e. firms doing possible harm, firms will need to be ready to provide data on request, such as the recent GI Intermediaries Portfolio Letter as the FCA will seek to understand how effective firms’ change programmes have been in practice.

Sounds daunting, I know because it does represent a mindset change for firms. That’s why the timelines are so challenging.

In my recent blog, based on the polling results from our webinar with Shoosmiths on CD, 38% of the 300 plus attendees said their firm was in the process of completing gap analysis (this was the largest percentage response). If this is the case, these firms need to move quickly. And I sincerely hope, their gap analysis work incorporates the challenges I’ve identified in this blog. 

In my next blog, I will focus on the first of the four outcomes, i.e., products and services, in more detail and consider what firms can do in this specific area to prepare for the demands of CD. Subsequent blogs will focus on the other three outcomes

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