Consumer Duty - Q3 2022

The FCA recently reinforced its message that by the 31 October 2022 deadline, Boards or the equivalent management body, should have scrutinised and agreed on their firm’s Consumer Duty implementation plan to ensure the firm is able to implement the Duty properly and on time.

Factors for consideration within implementation plans include:

• Resource availability and capability for delivery
• Budgetary considerations
• Governance and oversight arrangements including a Board champion
• Collection and use of data for reporting and Management Information
• Ongoing measuring and testing of outcomes for customers, particularly those in vulnerable circumstances
• Customer journey ‘sludge’ audits to identify unhelpful friction in the journey
• Target market identification and customer needs analysis, products and service design reviews and risk assessments
• Reliance on third parties, including distributors and manufacturers
• Plans for assurance.

Below are key focus areas that pose a particular challenge to firms.

Resource

When reviewing and challenging the Consumer Duty implementation plans, Boards should consider whether sufficient focus has been given to the availability and capability of resources to ensure the timely delivery of the plan. Firms should not underestimate the scale of changes and time required to implement the Duty fully, including across areas that may have had less of a direct regulatory exposure in the past.

What management should focus on: We would encourage firms to ensure resource allocation has been accounted for across business lines, in particular, in data and technology teams and product review teams, which can sometimes receive less attention than it warrants. Cost will of course be a factor for consideration when allocating resource, and therefore some form of cost-benefit analysis should be undertaken. It is important that firms try to reflect reasonable costs in budgetary discussions now to prepare for implementation.

Governance and oversight

It is necessary to highlight to firms’ management the importance of establishing a framework to oversee both the delivery of the implementation plan, as well as ongoing compliance with the Duty post-July 2023. The FCA has set out expectations that there should be strong senior championing of the Duty and a Board champion will play a key role in this. The Board champion will support the Chair and CEO to raise the Duty in a meaningful way in relevant discussions and to challenge how the Duty is being embedded within the firm to drive a customer outcome focus.

What management should focus on: The Board champion is not solely responsible for overseeing successful implementation. Boards should consider how they will ensure that effective governance and oversight arrangements are in place and what good will look like in their firm. Firms should implement a tracker tool which clearly sets out actions, owners and delivery dates so that senior management and the Board can monitor whether milestones are being met in regular Board meetings. It is critical that there are also mechanisms in place to ensure that insights are shared between any internal Consumer Duty working groups, SteerCos and senior management to inform the implementation plan and broader strategy. Executives may also wish to establish regular Board deep dive sessions to maintain a comprehensive dialogue with the Board on implementation.

Data

Data will be central to the Duty. It is at the heart of measuring and monitoring customer outcomes, enabling firms to demonstrate they are delivering good customer outcomes and complying with the Duty. As we’ve mentioned, data and technology teams and Subject Matter Experts (SMEs) should be identified at this early stage and allocated adequate resource to ensure that they can work with the business to draw out key metrics that reflect customer outcomes and produce comprehensive management information (MI) reports.

What management should focus on: Seemingly, firms are finding data collection and reporting of customer outcomes a particularly challenging area, especially where legacy technology systems or complex distribution chains and outsourcing arrangements exist. Management should consider whether these challenges impact their firms and to what extent relevant work plans or external expertise have been factored into the implementation plan.

References

A new Consumer Duty | Feedback to CP21/36 and final rules (fca.org.uk)