By Priscilla Gaudoin, 4 November 2024
It’s now just over a year since Consumer Duty came into force for open products and 31 July 2024 saw the regime extended further to closed products. The UK's Financial Conduct Authority (FCA) took this opportunity to share feedback, and highlight areas where firms are doing well and to recommend areas for more improvement.
- 27 July 2022 - Final rules & guidance published
- 31 October 2022 - Boards agreed Implementation Plan. Evidence scrutiny & challenge
- 30 April 2023 - Completed all reviews to meet the outcome rules for existing open products and services
- 31 July 2023 - Implementation deadline for new & existing products/services that are on sale/on renewal
- 31 July 2024 - Implementation deadline for closed products or services
Sheldon Mills, the FCA’s Executive Director of Consumers and Competition, emphasised that Consumer Duty had been embraced. He saw positive signs of a shift in company cultures and focus on delivering good outcomes. He illustrated this point with a few examples such as:
- Advisory firms who have simplified their processes or unbundled their fee structure to improve transparency and enable consumers to compare services.
- Cash savings with £4 billion potentially saved for customers from firms’ ability to respond quickly when base rates changed.
These examples were applauded as they demonstrate firms’ ability to adapt and reflect upon changes to their business models to embed the Duty into their company culture.
Data collection
The FCA also highlighted its intention to collect more data and emphasised that firms need to review their management information, identify additional data sources and, most importantly, spend time analysing that data to identify potential harm and success stories too. Why is this so important?
In Ruleguard’s January webinar on Consumer Duty [1], we highlighted the FCA’s key message: 'Consumer Duty is not once and done'. Firms need to be on the ball, constantly looking for opportunities to refine processes, to learn from their mistakes, but also to identify and respond to triggers. Meeting the Duty’s requirements is an ongoing requirement that requires firms to review and monitor the outcomes on a regular basis.
Ongoing efforts require firms to:
- Demonstrate the four outcomes
- Good governance
- Appropriate oversight
- Accurate, timely and relevant data
What data is needed?
The FCA’s feedback tells us that there’s no value in counting process completion items, unless that can give you insights into how well you’re delivering the good outcomes. Attention needs to focus on delivering outcomes. To aid this firms must have:
- clearly defined specific outcomes and of what foreseeable harm might look like in terms of their business activities, and
- must monitor activities and be proactive where risks to the outcomes are identified.
Whilst the regulator has not prescribed the metrics or data that a firm must gather, it has indicated that firms need to:
- gather appropriate data
- spend time analysing the data, and
- consider additional data points that it might need.
The regulator has also repeatedly indicated that firms need to look beyond their current management information and consider what might better reflect whether a firm is delivering good outcomes for its customers.
There are numerous forms of internal and external management information to help firms identify their strengths and weaknesses.
Internal
- Business retention rates
- Staff training records
- File reviews
- Complaints data
- Complaint root cause
- Output from regular testing
- Compliance reports
- Staff feedback
- Policy & procedure effectiveness reviews
External
- Distribution
- Behavioural insights
- Research and testing forums
- Customer feedback
- Feedback from parties in the supply chain
- External data sources
- Focus groups
The above table highlights some of the activities that a firm might consider undertaking to demonstrate delivery of good outcomes. What data does your firm gather? And how does it help provide assurance to your board?
Once you’ve identified how you’re going to gather data, you’ll need an audit trail of how that information is gathered and maintain the integrity of the data. The data also needs to be collated in a manner to enable any decisions made.
Priscilla Gaudoin is Head of Risk & Compliance at Ruleguard.
1 - https://www.ruleguard.com/webinars/on-demand/consumer-duty