FS regulatory affairs newsletter – Q4 2023
In this instalment of the FS regulatory affairs newsletter, our experts present their analysis of regulatory developments of the fourth quarter of 2023.
Consumer Duty - Q4 2023
First annual board assessmentReports are often hardest the first time they are done: there isn’t a previous model to start from; governance, infrastructure and accountability might not be in place or fully embedded to support efficient delivery; and the data and MI on which they are based may either not be readily available or is still under development. For many firms, these challenges are real and immediate as they prepare their first board assessment under the Consumer Duty, doing so at a time when firms are continuing with their established reporting cycles and practices. Whilst firms will already have been actively engaged in overseeing the delivery of the outcomes required by the Consumer Duty since last July, the first annual board assessment is a holistic, firm-wide review at the board level. The success of this review will depend on two key inputs. Firstly, the quality of the MI that the firm brings together (and, necessarily, the relevance and reliability of the data which underpins that MI – which might not have been data historically gathered by the firm). Secondly, the quality of the judgements based on that MI. Q1 2024 for many firms is the key time for pulling together the evidence and judgements which are crucial inputs to the board report. For boards, this will be a substantive review exercise. There are two critical areas on which the board will want to focus:
Through all of this, the role of the Consumer Duty Champion will be crucial – in supporting but also constructively challenging the executive as to the effectiveness of the firm’s work and playing a key role in the board’s first assessment of the firm’s Consumer Duty work, with the Champion mindful of their own responsibilities in this new and unusual role. The key to success is to ensure that the various stakeholders in the assessment play their parts: the executive is responsible for delivery; the board oversees that; and the Champion can help to bring the pieces together to enable informed judgements to be made about the delivery of customer outcomes. But the end of June deadline is fast approaching. Data and MIA key area of challenge for many firms has been to gather relevant, insightful consumer outcomes data – data which is fundamentally different to the inputs and activities data which firms have been used to gathering – and then to analyse that data through meaningful MI. That challenge is real not just at an operational level but also, as noted above, to enable the board to carry out its assessment of the outcomes the firm is delivering. As firms have realised, data/MI must be tailored to the outcomes delivered by each of their products and services – data which will be an essential building block for Consumer Duty MI used in the firm at every governance level. As noted above, that focus on outcomes – rather than activities or other things which are easier to measure – is new for many firms. The FCA recognises these data and MI challenges and is expecting to see a continuing evolution of firms’ data and MI so that they are better able to monitor customer outcomes. While Consumer Duty MI is, in many firms, still a work in progress, it is important that firms make the best use of the MI they currently have, both for operational delivery and also for the first board assessment but continue to develop their MI suite further in the months ahead. |
What management should considerThe twin challenges of the first annual board assessment and data/MI which firms are tackling in Q1 2024 will be topics which continue to occupy firms through the rest of the year – and which will help firms in addressing other challenges under the Duty, including firms’ reviews of closed books due to be completed by the end of July. Executives with responsibility for the outcomes required under the Duty will need to ensure that their assessments of the actual outcomes delivered to customers are sufficiently detailed, address the pertinent issues and are supported by relevant data and MI. This is critical as it will enable boards to review, robustly discuss and challenge those assessments in reaching their conclusions as to the extent to which the firm is complying with the Duty. |
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