Is technology key to navigating the FCA’s new Consumer Duty?

by | Jul 21, 2023

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Written by Josh Skelding, director at Twenty7tec and regulatory specialist Chris Croft from Bellevue Law

The Financial Conduct Authority’s (FCA’s) new Consumer Duty comes into force on 31st July. In this article, Josh Skelding, director at leading adviser technology company Twenty7tec, explains how technology can play a lead role in helping advisers meet requirements and do what they do best – serving their customers.

We also hear from commercial lawyer and regulatory specialist Chris Croft from Bellevue Law, who discusses the questions advisers in the financial sector need to answer to be compliant with the FCA’s new Consumer Duty from day one, and highlights the issues they may need to address following the initial implementation. 

 
 

Josh Skelding on how technology can help advisers meet the FCA’s new requirements

One of the demands of Consumer Duty is that advisers give consumers a better understanding of the respective processes and products through effective communication. Technology can act as a bridge for better communication between advisers and clients by providing customers with the information they need at the right time and presented in a way they can understand.

Another element of the FCA’s new regulations is that advisers need to evidence consumer support – using a tech tool can help advisers automate and store this information, making their work considerably easier and ensuring that a thorough and complete record is kept.

 
 

In terms of specific technological tools or solutions available to aid advisers in fulfilling their obligations under Consumer Duty regulations, many technology providers to the advice market (including Twenty7tec) have been engaged with industry-wide working bodies to ensure tech changes needed to support any new processes are already in place.

Another key aspect of the new Consumer Duty that technology can help with is accountability and transparency, which have been clearly defined under the Consumer Duty – advisers have to prioritise giving customers access to information that they can understand. Technology can help by storing information and giving both the adviser and the customer access to it. Some tech providers automate communication, which allows advisers to spend less time tracking and saving data and more time focusing on outcomes for their customers. 

The new Consumer Duty also requires advisers to be aware of the needs of vulnerable customers. Reporting with the use of technology can help advisers to understand which customers are classed as vulnerable, and what makes them vulnerable, what fees clients have paid for which services over a certain time period, and which clients have not had any kind of review over a certain time period.

 
 

Ultimately, the new Consumer Duty is all about advisers monitoring and documenting their interactions with clients to demonstrate compliance with the regulations. Technology is key to this, as it smoothes the transition from having everything in silo to putting it all under one roof and giving ease of use to the adviser. By using technology that automates workflow, advisers can rest assured that they are meeting the FCA’s latest guidelines and refocus their energies on delivering the best outcomes for their clients.

Chris Croft on preparing from day one for the new FCA Consumer Duty  

It’s important that those working in the financial services industry understand that the new Consumer Duty isn’t simply a rebranding of Treating Customers Fairly (TCF). The FCA’s expectations now go much further, and there will be significant consequences for firms that fail to comply. 

 
 

This is why you are well-advised to read up on the FCA’s 10 key questions for firms to consider (published on the FCA website on 28th June), which include whether you are satisfied your products and services are well designed to meet the needs of consumers; whether your products or services have features that could risk harm for groups of customers with characteristics of vulnerability; and whether you have identified the key risks to your ability to deliver good outcomes to customers and put appropriate mitigants in place. You should feel confident about your answers to each of these questions ahead of the introduction of the new regulations.

Where you might find your business falling short is on those questions relating to consumer communication and reporting. These include the question of how you are testing the effectiveness of your communications and how you are adapting your communications to meet the needs of customers with characteristics of vulnerability, for example. This is where the new regulations move far beyond TCF and require a whole new level of customer communication.

The fact is that although 31st July marks the launch date of the new Consumer Duty, we don’t yet know exactly how it will be implemented and how compliance will be judged. It will be an iterative process. Whilst nobody should be expecting a knock on the door on 1st August. Consumer Duty is an outcomes-focused piece of regulation, and because outcomes only really emerge with hindsight, it is crucial to concentrate on documenting the steps you took to achieve the desired outcomes now. It will be too late when the complaints arrive! 

 
 

This is where technology comes into play, as one of the great challenges in complying with the new regulations is documenting and recording the various actions taken. And it will no longer be sufficient merely to provide quantitative data on compliance and monitored customer outcomes as collected through customer surveys, complaints data and the like. The FCA will also require qualitative data of the sort that can only really be captured with a proper CRM system.

Such management systems will sit at the heart of most companies’ compliance efforts.  A number of firms will be asked by the FCA to produce in January evidence of the dashboards they are using to report to their boards. And the data that feeds into the dashboards must necessarily be of sufficient quality to provide meaningful insights and possible action points if required.

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