Welcome to our week-long editorial series celebrating the first anniversary of the Consumer Duty (CD). During this week, we will dive into the transformative journey that advice businesses have undertaken to integrate these crucial regulatory changes. Each day, we’ll explore different facets of how Consumer Duty has reshaped compliance, business practices, and customer outcomes across financial services. You can find all the coverage as we go through the week right here
This anniversary marks a significant milestone, reflecting on the strides made by advice firms, product and service providers to prioritise consumer needs and deliver good outcomes. Our series throughout this week will cover the necessary changes in compliance, the role of technology in supporting CD, the importance of data and analytics, the impact on customer engagement, as well as the future outlook for Consumer Duty.
Day 1: What changes have been necessary in compliance and regulatory practices?
In our first article, we examine the pivotal adjustments in compliance and regulatory practices required to embed CD principles. We’ve reached out to industry leaders and experts and asked them to share their insights on the evolving landscape. Join us as we explore these critical changes and set the stage for a week of in-depth analysis and discussion on the ongoing evolution of Consumer Duty.
In terms of changes, Chris Jones, Chief Product Officer at Dynamic Planner said: “Last year the focus was on the deadline and so we have seen many changes put in place with that in mind rather than those necessary for long-term adoption of the principle. Different firms, different departments and different people have done it differently with a different perspective. You can see examples of changes to be able to evidence that the status quo already meets the consumer duty rather than focusing on making sure that the culture and organisation of the business itself meets the duty.
Across the outcomes and cross-cutting rules, you can see a bias towards the ones that compliance departments are more familiar with and can be most obviously measured rather than the ones that they are less used to. Proportionality is key and you can see smaller firms’ gold plating their processes. Overall, it is necessary to change compliance and regulatory practices to focus on consumer outcomes and not on the Regulator, the PI insurer and the shareholder. There needs to be structured reviews over ‘we have always done it this way’ and a broader and deeper use of data not just the data that you control and suits your purposes.”
Alastair Black, head of savings policy at abrdn, said: “The first year of Consumer Duty has been defined by embedding and learning. A principles-based approach, by definition, doesn’t have rules, so everyone – including the FCA – has been feeling their way and charting a path forward.
“The langcat’s latest Advice Gap report highlighted a change in focus to core client groups and greater client satisfaction. While the change in focus inadvertently increases the advice gap, this is good evidence of firms having rigorously reviewed processes, tightened up target markets and delivered even better client outcomes off the back of embedding Consumer Duty. But we haven’t seen dramatic change in the sector, and it was always unrealistic to assume this would happen. Consumer Duty is built on existing regulation to deliver good outcomes. Those firms that were already relentlessly focussed on delivering for clients – which is after all the key purpose of most adviser firms – will have been largely complying already.
“That being said, the past year might have felt frustrating for some. Most firms in the sector are smaller businesses and spend the vast majority of their time directly dealing with clients. Having to take additional time out to kick the tyres and document processes and governance will have added to already stretched workloads. But having made it through these past 12 months and completed these reviews, they’ll likely find coming years easier.
“Going forward, firms’ focus should be as much on compliance efficiency as it is on compliance itself. Done well, this will help raise standards of service and enable advisers to spend more time doing what they do best – advising clients. There will always be opportunities to enhance services off the back of Consumer Duty – including how to measure value, which was always a concern given that this also encompasses more abstract concepts like peace of mind – but we can also expect to see the FCA publish more best practice guidance as it observes good practice in the field, which will only help firms measure what good looks like.”
Helen Slater, Regulatory Manager at FE fundinfo said: “The FCA has taken the opportunity to announce a call for input into the complexities experienced by firms when implementing the rules.
“We all know that regulatory creep and duplication is pretty much inevitable when rules are designed to be overarching and cover such a wide range of firms, products and consumers. So, the FCA’s announcement is a welcome one and will give firms the opportunity to raise their concerns with the Regulator by 31 October. Duplication makes the rules longer than necessary but shouldn’t make them harder to comply with; it will be more interesting to see if firms are able to identify any areas where adhering to the Consumer Duty may make compliance with other rules harder.
“Additionally, it will be interesting to see what issues materialise around how consumers are treated. Let’s remember that it’s not that long ago that a lot of firms claimed not to have a single vulnerable customer on their books. While the FCA stated that at least 50% of consumers are vulnerable at some point due to their financial circumstances; life events; health issues; and understanding of financial matters. Those first Board reports will no doubt make interesting reading
What should be easier for firms to work with is the introduction of closed products to the scope of Consumer Duty, as there are no communications aiming to get consumers to part with their money. The main focus there should be on checking whether the products deliver what they had promised and whether there are any unreasonable barriers to switching out into other products.”
Legal & General’s retail division has also told us their views commenting: “Over the last two years, a lot of great work has been delivered across Legal & General to ensure that we are focused on delivering good outcomes for our customers, which has always been a priority for the company. Our group-wide Consumer Duty Programme has been central to driving this work and has enabled us to prioritise customer needs and preferences.
Our focus on developing new consumer duty measures has enabled us to challenge ourselves to act more quickly, be more creative on how we solve problems for our customers and raise our standards. This has been facilitated by the introduction of our new Customer Outcome Forum chaired by our Consumer Duty Board Champion, one of our non-executive directors. In addition, we’re regularly testing our communications against the standards set out by the duty to continue improving understanding and we’ve enhanced our fair value monitoring through a refreshed approach to our Value for Money assessments (VFM).”
Sebastien Petsas, Managing Director of Financial Services Compliance and Regulation at Kroll said: “With the introduction of the second phase of the Consumer Duty, firms within its scope must now prepare detailed and specific reports that demonstrate their compliance with the new requirements, supported by robust evidence.
“Of course, business reporting has always been a key management and governance function for businesses. However, the new emphasis on evidencing how strategies, processes, and activities are geared towards achieving positive consumer outcomes has compelled firms to adapt and place greater emphasis on their monitoring and reporting efforts.
“Firms must not only ensure that they are consistently working towards delivering good consumer outcomes but also exercise exceptional diligence in tracking their progress towards this overarching goal which now permeates financial services.”
What’s the consensus?
It is clear that the regulatory landscape has experienced profound changes. The integration of Consumer Duty has prompted firms to realign their compliance and regulatory practices with a stronger emphasis on achieving positive consumer outcomes. The shift from merely meeting deadlines to fostering a culture centred on consumer needs is evident across the industry.
Experts and industry leaders have highlighted several critical changes. For instance, businesses are now focusing more on long-term adoption of Consumer Duty principles rather than just short-term compliance. This shift is reflected in the way firms approach compliance, with an increased emphasis on embedding a consumer-centric culture rather than merely adjusting procedures to meet regulatory requirements. Proportionality and a broader application of data have become essential, as firms are encouraged to look beyond their existing metrics and adapt to new standards.
Furthermore, the introduction of detailed reporting requirements under the second phase of Consumer Duty has underscored the need for robust evidence of compliance. This enhanced focus on monitoring and reporting is reshaping business practices and driving continuous improvement.
Look out for insight #2 tomorrow here on IFA Magazine’s Consumer Duty category
