Consumer Duty – Five points to consider

Complaint root cause analysis

The Consumer Duty will bring a much greater emphasis on achieving good customer outcomes and meeting the needs of vulnerable customers. Root Cause Analysis (RCA) can provide valuable information to support this. However, we rarely see firms getting this completely right and learning lessons from it. We often see that broad categories are used for RCA without seeking to understand and make necessary changes to products, services and systems or platforms.

When a firm receives an influx of complaints, the complaint handling timelines may become more of a focus to avoid DISP rule breaches. However, failing to investigate or reaching the wrong outcome without useful RCA can lead to further issues in the long term.  

By establishing root causes, firms will be able to reduce customer harm and potentially reduce complaint volumes. This will also help demonstrate to the regulator that customer needs are placed at the heart of the business.

Closed book reviews

The regulator has said it anticipates ‘significant issues’ with closed books and firms’ ability to meet the Consumer Duty. These products have never been reviewed and assessed in this way before, they may have been closed for some time and it may be difficult to get hold of the information you need. Firms are not expected to adopt the new rules to past actions, but any poor outcomes identified may well breach the Treating Customers Fairly principle. This means firms will need to be careful in deciding whether a past-business review is required rather than assuming no retrospective action is necessary.

The good practice highlighted in the FCA’s May 2023 fair value assessment review should be applied in the assessments of closed products as well as existing products. Firms that have completed the assessments for their existing products should also apply any lessons learnt and improvements to their approach when it comes to closed products.

Whilst the regulator expects closed products to be compliant with the new rules from 31 July 2024, firms will need to complete their fair value assessments and make any changes well before that date. In addition, the regulator expects firms to consult with them before terminating any closed products or services.

Digital presence

The FCA emphasised the importance of the Consumer Duty due to the “increasingly fast and complex digital environment” in which customers access financial services. The Consumer Duty will have an impact on how firms manage their digital distribution channels for compliance with the rules. This largely comes down to understanding how customers engage with the digital platforms provided, to understand if they are effective in achieving good outcomes.

For example, firms will need to consider how they present information and data in a way that supports customers to access their services. Digital platforms that are difficult to navigate, insecure or fail to provide the customer with the support that they require will all fail to do this.

Outcomes testing approach

Firms should be well on the way with their outcomes monitoring approach. The approach taken will be specific to the firm and the impact it can have on customers.

This is not just a case of re-purposing what you did under TCF and Conduct Risk. You may well have had some of the same management information available, but you’ll likely need to consider it from a different perspective: how can we prevent our customers from experiencing poor outcomes.

The FCA said that it expected firms would already have a lot of the outcomes monitoring information available, such as persistency rates and complaints data. Something that firms might not have considered is how they can use staff feedback on customers’ experience as part of outcomes monitoring. Front-line staff will likely have useful insights from their contact with customers and use of systems on a daily basis. However, there might not be a formal approach in place to gather and use this feedback to help improve customer outcomes.

This kind of monitoring should seek to improve customer outcomes in the long-run.

Managing your suppliers 

The new Duty is applicable to all firms within a distribution chain, including suppliers that do not have a direct contractual engagement with the consumer. This is not just about how your products are sold, but about the outcomes your customers receive throughout their customer journey. As a result, you should consider other suppliers who have an impact on your customers’ experience (and the outcomes they receive).

Your supplier management should therefore consider whether suppliers might affect your compliance with the Consumer Duty. This will be relevant at different stages of the supplier relationship. At onboarding, do you consider whether your suppliers have the right culture which fosters the delivery of good customer outcomes? This should form part of the due diligence that is conducted. Do you trust your suppliers to interact with your customers, avoid poor outcomes and to maintain your reputation? Does this form part of their performance review? Your customers are likely to see such suppliers as an extension of your firm and you should take the same approach.