With less than 90 days to go until the FCA’s Consumer Duty comes into effect on 31 July 2023, Oliver Sharland, managing principal at technology and management consultancy Capco, explores the actions financial services firms urgently need to take to comply with the upcoming regulations:
With less than 90 days to go until Consumer Duty comes into effect, financial institutions should be ensuring they can provide a compelling story to their management bodies and regulatory supervisors to demonstrate that they are meeting their obligations to deliver good outcomes for retail customers. There are five areas they should urgently focus on ahead of the July deadline.
- Frameworks, tools, policies and procedures
Firms should embed Consumer Duty into their BAU frameworks. Given the breadth of the Duty, we it should be reflected in a firm’s product governance operating model, conduct framework, pricing and interest rate setting strategy, vulnerability framework, third party risk management framework, SMCR approach, and more.
- Training, culture and governance
Financial services firms need to demonstrate tangible changes to their culture. A first step in achieving this is by developing a deeper understanding of good customer outcomes in their staff, particularly those with direct customer interaction. Of equal importance is how customer outcomes are now considered in relevant governance fora and decision making. Key to this is having active engagement from the board champion.
- Reviews and remediation
Most firms have structured their plans to complete reviews of target market and fair value, as well as the associated communications and customer journeys, followed by a triage process and remediation. However, they will need to evidence the thoroughness of the review process and transformation discipline for any subsequent remediation or improvements made. Critically, firms must be able to demonstrate that decisions have been made against an agreed methodology focussed on customer impact.
- Enhanced outcome monitoring and use of data
The ability to identify and respond to instances of customer harm is one of the foremost objectives of the Consumer Duty. Firms should make improvements to their outcomes testing capabilities, as well as enhance their data aggregation and reporting to enable a holistic view of customer outcomes. A formal report on customer outcomes to the board is not a regulatory requirement until July 2024, however firms should consider this to demonstrate a shift in how customer outcomes are monitored and governed.
- Day 2 planning
Demonstrating a robust day 2 plan is nearly as important as evidencing what firms have achieved by July. Firms should signal to the regulator that while July represents compliance, this is just the start of their journey to greater customer centricity. Day 2 plans should contain remaining areas of remediation that were not prioritised for July, more ambitious transformation initiatives focussing on digitisation and the further enhancements to outcomes monitoring, and the plan for the review of the closed book products.
The customer is key
Firms should ensure that the processes they put in place drive ongoing improvements to customer outcomes. They should see this as part of a journey, rather than one big project that gets forgotten. Those that not only comply with the Duty, but put customers at the heart of everything they do, will be the ones that prosper.