The FCA’s New Direction – Outcomes Focused Regulation

Sarah Lawrence

Sarah Lawrence

Sarah has spent over 20 years of experience in the financial services industry, including over 16 years working at the Financial Ombudsman Service. Sarah specialises in customer service and complaints handling, with extensive experience of management and mediating complaints and is dedicated to passing on her knowledge and experience to businesses to improve complaints handling, customer service and consumers’ perceptions of the industry.

I think we can all agree that a crystal ball would be about the most useful tool now for trying to make post-Covid decisions for firms in the financial services. We are still seeing the effects of the Covid pandemic and the ever-changing regulations around that playing out, and along with this we have the impact that Brexit brings. Has one masked the other? Without question, but we are still expected to be able to navigate this unpredictable landscape, without knowing what that means for us all.

So, with that in mind I had a look at a speech given by Charles Randall, Chair of the FCA and PRA – ‘Outcomes-focused regulation: A measure of success?’, to find any indication of where the regulator envisions firms heading in the months and years ahead. The full speech can be found here on the FCA’s website.

If you have read any of the guidance, consultations and publications released by the FCA over the past year or so, you may have noticed a change in tone. What started out as a small paragraph on page 15 of the FCA’s Business Plan 2019/20, concerning three KPIs for measuring change, has grown significantly. Much of it is focusing on minimising and reducing risks to customers, particularly vulnerable consumers, of which there is a growing number as a result of the Covid 19 pandemic (53% of people have at least one characteristic of vulnerability according to the FCA).

In short, the FCA wants the industry to start showing real, tangible changes in its culture, which requires firms to shift their focus to customer outcomes, but also for those changes to be measured in meaningful ways. Charles Randall’s speech summarises this, as moving away from ‘compliance or tick-boxing exercises’, which in turn means focusing less on ‘regulatory requirements’ and more on ‘outcomes.

It is essential for firms to measure their business practices, processes, and outcomes. Whether it is the reviews we get from our clients on our performance as a firm, or the quality checks we have in place, nothing says success like getting 5/5. But this shift must be more about measuring the right things rather than the things we have always measured previously, so we come out with meaningful feedback.

Leading on from this, the FCA has been focussing on the importance of cultural change as featured in the Business Plan in 2019/20. We get a real sense here that cultural change is shorthand for, ‘we’re getting tired of seeing the same things happening’, and it is something that really comes through in this speech. I mean how many times do we have to see the same customer harm (Pension review and DB transfers anyone…?) before we decide that the measures, we have in place simply are not the right ones?

The three KPIs that were referred to back in 2019, were upheld complaint numbers, redress levels and customer feedback. However, as the FCA starts to provide more detail and clarify their position, there are drives for additional transparency, as well as embedding processes and cultures from across all levels with firms that drive the right outcomes for customers. The evidence of this can be seen in the guidance around vulnerability, in the FCA’s Financial Lives Survey 2020 and it is illustrated in the consultation on a New Consumer Duty, which sets those expectations and outcomes at a higher level. As part of my blog around vulnerability and innovation there is a focus on adhering to the guidelines around consumer duty and how the FCA is dedicated to favourable and fair outcomes for the most vulnerable, and how new technology changes may affect them.

By Mr Randall’s own statements, much of the measures that come out of this work will need to be ‘reversed engineered’, which tells you the scale of the issue for the regulator. But there are things that we, as firms can do to prepare ourselves for this change. For example, measuring those three KPIs could be a reasonable starting place, if you are still in the consideration stage of choosing the best way to start measuring outcomes. You may consider introducing functionality for customer feedback, which can display that your firm is embracing the importance of their clients’ views and have a willingness to learn from them. Regardless of whether you have formulated key questions yet, it is far better to have a work in progress and something to build on, before the KPIs become a real, practical measure by the FCA.

And if you want to delve further into what this means for us as an industry, it would be valuable to look at the FCA’s Financial Lives Survey 2020, which puts how consumers are faring with the impact of the coronavirus pandemic through the lens of vulnerability. The fact that ‘trust’ was measured and found to be lacking, across the industry, is a good indication of where we have to focus our attention, not just customer’s perceptions of our industry, but also to align with the FCA, and are primed to get onboard with measuring the right things and focusing on reducing risk to consumers.

As part of this blog series, we will continue to focus on outcomes, so to ensure you don’t miss out on our upcoming blogs – Click here to join more than 10,000 other subscribers and keep up to date with our latest news, products and publications.


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