Consumer Duty

Improving customer outcomes

The delivery of the Consumer Duty obligations is not one point in time but a process of continuous improvement”

Nadege Genetay, Partner, Sicsic Advisory

With the deadline for the first annual Consumer Duty board report fast approaching, firms should be thinking about what it will look like. Spending time now setting out what the report will cover should ensure that gaps and issues are identified and addressed well in advance of the board approval.

 

Firms should also ensure that they are on track to implement the Duty for closed books by 31 July 2024.

 

By now, firms should be well advanced in their implementation of actions that were postponed until after the July 2023 deadline. Embedding new processes, such as those around Consumer Understanding, and monitoring customer outcomes as part of a more established governance structure should be in progress.

 

Many firms will also seek assurance on their compliance with the Duty from second and third line or external reviews.

 

We have supported many clients’ Consumer Duty implementation, undertaken follow-up reviews and developed a unique understanding of the key challenges firms face. We can benchmark your firm’s progress with the rest of the industry or provide assurance that your firm is where it should be. We can also support your firm with the preparations for the July 2024 deadline and the board approval of your firm’s first annual Consumer Duty report.

A significant shift in culture and behaviour

The new Consumer Duty is “a significant shift in culture and behaviour” in the FCA’s words. The Duty asks firms to think for themselves what are good outcomes for customers in the context of their specific business model; this is not about compliance with specific rules, but very much about strategy, business model, and culture.

 

While it includes familiar concepts such as a customer-centric approach, clear communication, responsibility through the distribution chain, and assessment of fair value, this Consumer Duty regulation differentiates itself by having a broader scope and the anticipated intensity of monitoring and supervision.

Outcome-based regulation

The Consumer Duty rules aim to stop practices that stand in the way of good customer outcomes such as exploiting behavioural biases through sludge practices. It also requires firms to be proactive in delivering good customer outcomes and avoiding causing foreseeable harm. As the FCA put it: “getting it right in the first place”.

 

In line with this comes a shift of mindset towards outcomes-based regulation with the FCA wanting firms to focus less on meeting the letter of the rules and more on the outcomes for customers, no more “narrow compliance and [more] focus on delivering good outcomes”. As the Consumer Duty becomes embedded, this mindset should come through all decision-making, governance and ways of working, and should be the flavour of your firm’s annual board report.

Summary

What?

The Consumer Duty is a package of regulatory measures to improve customer outcomes in financial services, based on a new Consumer Principle and supported by three cross-cutting rules, setting the behaviours the FCA expects from firms and their staff, and four customer outcomes.

Who?

It applies to all firms involved in ‘retail’ markets, including firms that may not have a direct relationship with the end customer, when they have a material influence over product design, distribution, or consumer communications. 

How?

Rethink your relationship with your customers: product design, distribution, pricing, customer journeys, communications, support services. Explore more management information and data to assess fair value and good outcomes. Ensure that your strategy and decision-making are demonstrably considering customer outcomes, particularly at the time of the cost-of-living crisis.

Key dates

By the end of October 2022, a Consumer Duty implementation plan should have been approved by boards. Manufacturers should have reviewed outcomes for open products by the end of April 2023 (April 2024 for closed products) to give them time to communicate with third parties, and remedy poor outcomes. The new rules came into force for open books at the end of July 2023 with boards expected to confirm their compliance with them. Boards should approve the first annual report on Consumer Duty before the end of July 2024 which is also the implementation deadline for closed books.

Monitoring and enforcement of the Consumer Duty

How your firm should monitor their own performance?

The FCA expects firms to have rich management information to help them monitor customer outcomes. The board will receive a report annually on outcomes for customers, agree any risks of poor outcomes, and remedial actions if poor outcomes have been identified. They will also need to confirm that the firm’s future strategy is consistent with the Consumer Duty (or make changes if not). The monitoring of customer outcomes will need to be embedded on an ongoing basis in the firm’s governance and controls. In 2024, it’s crucial that firms can demonstrate a shift in monitoring customer outcomes and taking meaningful action where there are indicators of poor customer outcomes. The FCA will expect firms’ board report to provide sufficient information to support the assessment and remedial actions.

What you can expect from the FCA?

The FCA’s continuous stream of activities (webinars, portfolio letters, multi-firm reviews and surveys) and its Business Plan 2023/24 made it clear that it intended the Consumer Duty to be reflected across all of its activities with a data-driven focus. The FCA’s budget includes further investment for this initiative, among others a new Interventions team within Enforcement. So don’t be surprised if they knock at your door. The FCA’s increased use of data, and their assertive approach with firms where they identify potentially poor outcomes is evident, with interventions in the public eye in GAP and multi-occupancy buildings insurance and cash savings.

Key questions to ask yourself

If the Financial Conduct Authority (FCA) comes knocking at your door, how confident are you that you will measure up to the regulator’s high expectations?

 

Is there an appropriate oversight of your firm’s post 31 July 2023 actions?

 

Are you embedding Consumer Duty into business-as-usual?

 

What assurance can/does give you comfort about the implementation of the Duty and how it’s being embedded?

 

Have you identified any additional work required?

 

What are you going to tell your board come July 2024?

 

Will you be able to answer the FCA’s key questions for board members on culture, governance and the customer outcomes?

 

If you are unsure about any one of these questions, get in touch and see how Sicsic Advisory can support you.

Sicsic Advisory’s Consumer Duty services

Implementation support

• Advice on frameworks, policies, controls and operationalisation
• Outcome testing
• Customer journey reviews
• Support and challenge on Management Information (MI)
• Support and challenge on product and fair value assessments
• Advice on design and content of annual board report

Assurance on implementation post-July 2023

•  Overall governance and controls

•  Product reviews and fair value assessments

•  Customer communications framework

•  Feedback loops and insights

•  Management information (MI) and reporting

•  Culture

Co-sourcing assurance services

•  Co-source internal audit functions

•  Support Second-line assurance functions

•  Immediate access to wider skills and experienced specialists 

•  Tailored service

Case studies

Get in touch

Please get in touch to find out more