Consumer Duty is almost here, and more firms are realising that they can’t put off thinking about it until the final rules are announced. We have just over 12 months to go, and most businesses still have a lot of ground to cover to get Consumer Duty Ready.
Where Are We Now?
The landscape of customer care varies significantly across Financial Services. Sectors have already undergone regulatory changes around customer value, for example, we have seen the insurance industry address ‘Fair Treatment of long-standing customers and more recently Pricing Practices, therefore some may find that a lot of the work they have previously completed has already set them on the right path. The recent regulatory focus on Vulnerable Customers has also led to a number of organisations making changes that can pave the way for Consumer Duty work. For others though, there is going to need to be a ground-up re-think of how positive customers outcomes are delivered, assessed, and recorded.
Looking at the recent history of regulatory developments, we can see Consumer Duty as the continuation of FCA’s journey which has included Treating Customers Fairly, Conduct Risk and the Senior Managers and Certification Regime – a gradual shift toward encouraging and enforcing accountability for customer outcomes. We could see the implementation of Principle 12, as an elevation of the standards set out in principles 6 and 7. What we do know is that Consumer Duty represents a setting down and codifying of what were previously unwritten expectations – we’re talking about a level of responsibility to customers that has been expected but was not necessarily explicitly detailed in any of the rulebooks.
The FCA has been clear about wanting to establish a consistent standard for customer experiences and outcomes. They are making it clear what every relevant business needs to deliver, and how that will be supervised. This represents a new era where organisations need to be getting it right first time with remediation only after a problem occurs not being good enough. I think even firms that are confident that they are providing good quality to their customer base will need to re-assess how they track and codify their outcomes. If the regulator takes a comparative approach, I think we may see a situation where a customer experience that has previously seemed to be a good one turns out not to be as good as a better-prepared competitor.
How Can We Best Prepare?
It’s almost easier to say what not to do – looking at this as purely a Compliance problem is going to leave crucial parts of your organisation exposed. Any element of what you do that informs the customer outcome needs to be examined and potentially reshaped – from initial product design through to legacy communications. That whole-of-business approach extends to making sure that there is buy-in from your board of directors. The board will be required to sign off on outcomes achieved. Consumer Duty is going to impact areas that may seem to be far outside of the usual consideration for “regulatory transformation projects”. This may sound dramatic, but this is one of the most “big picture” regulatory shake up’s we have seen in a long time, and it’s important not to leave areas of your business working in silos. Affected firms need to be reaching out to frontline customer service, initial product development teams and everyone in between.
Information provision is going to be a crucial consideration. Firms need to think not necessarily in terms of preventing customers from making bad choices, but instead to focus on providing all of the information they need in order to make good decisions.
If we see “the customer getting the right information” as the very beginning of the journey, we also need to think about what the end of that journey might be and recording outcomes. What information are you storing? How are you storing it? And what are you doing with that data to improve future customer experiences?
Another example of needing to approach Consumer Duty is the need for culture shifts around “Good Outcomes.” There is a tendency to think of a Good Outcome as the one that makes a customer happiest – but what if that isn’t the best value for the customer in the long term? Sometimes an outcome that feels immediately uncaring – repossessing a car they cannot afford to pay for, for example – may be hugely beneficial to that customer’s long term financial stability and, as a result, emotional wellbeing. That is going to be a key thing to understand – the FCA is not just talking about positive and negative customer effects in financial terms, and we all need to be more holistic in how we think about both detriments and benefits of products and services. Part of that might be developing an understanding that Fair Value is a relative concept, and what represents Fair Value for one person might be completely Unfair to someone else in different circumstances.
It is also important to consider the structure of the work you do on Consumer Duty – and the work you will need to do in future. Considering the complete customer journey means we’re going to need to keep thinking about product lifecycles and back book products. A product that has delivered good value to a customer at the outset, may not be right for them years later? I think businesses will need to change how they think about communications with pre-existing customers.
What Concerns Do We Have?
All of this represents a significant challenge from a resource and planning perspective. Organisations should think about if they want to designate Consumer Duty Champions for every part of the business, and how they can coordinate the work to deliver a unified approach.
I think there is some specific anxiety out there from mid-sized organisations seeking the “best “ approach. In an ideal world, every customer would have their own dedicated account manager – but with that being impractical, we’re looking at different approaches from different sized organisations. For very large businesses they can harness technology resources to track customer journeys and automate large scale research projects. For small businesses, they can use their personal customer service approach. For everyone somewhere in the middle, I think it may be challenging and I would recommend that they have working parties looking at this now, if not already.
There is concern from some about the idea that the change in approach will see companies being held responsible for choices made by their customers. I think the positive way to approach the issue is to think about giving your customers all the information they need to make informed decisions.
When looking at legacy products there are growing fears that the new rules will lead to some businesses simply killing off products that are difficult to bring in line with the new rules. This could make finance harder to access for the most vulnerable consumers, and they may even be driven to unregulated, illegal money lending avenues instead. It is going to be important to balance all of these concerns against each other – which undeniably represents a significant challenge.
Thinking about the burden on organisations, there’s also the fact that this is far from the only concern any business has right now. There are ongoing effects from the pandemic and other economic shifts which have seriously affected customers’ ability to pay
How Can We Help?
I know many businesses are currently completing a gap analysis and beginning the initial planning for their Consumer Duty projects. We know that no business sets out to cause harm to its customers so it’s very easy to say, “we have good products, our customers are happy, we don’t have concerns about this”. Cultural Change is a very big thing to also consider, and it can involve uncomfortable questions, particularly when looking at what remuneration models are in place in relation to the sale of products. It is important that there is a holistic approach to good customer outcomes, as there can be a reluctance to challenge group norms.
So, there is a lot of work to do, and a lot of questions out there that we are all hoping the FCA will answer, but I do think that this can be a really positive thing for the business, and there’s no reason to sink into negativity
We are working with a number of firms to support them with Consumer Duty, by providing a ‘Critical Friend’ who is comfortable pointing out unexamined flaws in processes and systems with an unbiased, independent perspective.
We hope that the changes that come with Consumer Duty will increase the general public’s trust in Financial Services, and that’s good news for all of us. If you are concerned about your Consumer Duty preparations and are interested in how specialised outside or temporary resource may be able to help, get in touch for a confidential conversation on email@example.com or 0121 643 2100.