Summary
The board review of implementation plans on the new Consumer Duty regulation well underway and any number of articles circulating, so we thought a more practical discussion on the operational questions and considerations might be useful. With much written on product suitability and price/value, we explore those practical questions senior leaders should be asking regarding understanding, communicating with, and servicing your clients.
Consumer Duty in a nutshell
To paraphrase the FCA’s description, the new consumer duty regulation is:
A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers.
It includes cross‑cutting rules providing greater clarity on our expectations under the new Principle and helping firms interpret the four outcomes outlined.
The cross‑cutting rules require firms to:
- act in good faith
- avoid causing foreseeable harm
- enable and support retail customers to pursue their financial objectives
The rules relate to four outcomes required under the Duty. These represent key elements of the firm‑consumer relationship, which are instrumental in helping to drive good outcomes for customers. These outcomes relate to the following:
- products and services
- price and value
- consumer understanding
- consumer support
The rules require firms to consider the needs, charcteristics and objectives of their customers – including those with characteristics of vulnerability – and how they behave at every stage of the customer journey.
As well as acting to deliver good outcomes, firms will need to understand and provide evidence of whether those outcomes are being met.
Key dates
- End of October 2022: Boards must have agreed implementation plans.
- End of October 2023: Manufacturers have to have completed reviews to enable them to meet the four outcome rules; products and services, price and value, consumer understanding and consumer support.
- End of July 2023: Rules start for open products.
- End of July 2024: Rules start for closed products.
Prepare by asking the right questions
With the goals of the new regulation in mind and a view to good business practice, we’ve outlined a few questions boards, and senior managers can ask to understand better the operational road ahead and potential challenges that may arise:
Do you have an easily accessible and up to date, simple history of client discussions and interactions across all of your offerings?
- While many firms may answer yes to this question, building this simple history is often the product of multiple queries across many systems and significant amounts of manual intervention and cost. Ask to see a copy, it could be interesting.
- This core element of functionality is critical to basic customer service (as other industries would attest), understanding your customers and evidencing good practice.
How are you staying on top of (and evidencing) changing client circumstances and requirements?
- Are you only updating your customer information in annual face-to-face reviews, or is this facilitated with digital tools, targeted questionnaires, or periodic VCs?
- Is this tracked against your “single view of the customer” so all relevant parties are aware of changes in circumstance or vulnerability?
How are your updating recommended products and services for changing market and personal circumstances?
- Do you have a systematic approach for (re)-assessing suitability, or is this a manual or off-line exercise?
- As a manufacturer, how are you monitoring suitability in the face of changing market/target customer circumstances? How are you ensuring distributors are updated on any changes in suitability?
- As a distributor, how are you ensuring manufacturer recommendations are updated regularly and applied against changing client circumstances?
What do your customers think about their interactions with you? How do your customer SLAs stack up against others in the market (or against comparable industries)?
- Again, an essential element of good customer service but now also a regulatory imperative. While everyone recognises the albatross of legacy systems that are still weighing down the sector, there are tools that can be used to streamline and address these deficiencies.
Can customers interact with you in the way they are most comfortable (or capable)? Are the spectrum (rather than a binary view) of possible vulnerabilities being considered in your contact strategy?
- With the term “omnichannel” now gathering dust in the buzzword hall of fame, most are aware of the desire to serve clients how, when, and where is most appropriate for them. But, with the overlay of vulnerability, the equation of cost to serve and meeting customer needs will need to be carefully considered.
- For more on supporting vulnerable customers and why it isn’t just the right thing to do but also good business practice, read AI supporting vulnerable customers in financial services in 2022 and beyond.
Are clients receiving marketing or other collateral appropriate for their circumstances (in a way they can understand it)? And do you know if they are even reading it?
- GDPR helped to define the rules around how prospects and clients want to be communicated with, but this new principle implies a duty to ensure what is communicated is appropriate and understood.
- Over and above this regulatory implication, focusing on communications and helping to ensure the right messages get to the right people in a way they can understand is just good business practice.
Are your Consumer Duty plans supported by your existing infrastructure or is it creating yet another bureaucratic overhead?
- Those long-in-the-tooth cynics that have seen the mountains of new regulations over the years have also seen the practice of just adding to the long list of KRIs, KPIs and governance committees to address new requirements.
- It may sound like a simplistic approach but addressing the fundamental issues in the infrastructure to enable the right things to happen, rather than just adding “bolt-ons”, introducing triple checks, and more committees, would seem to be a more sound approach. And the bonus is that it helps to move towards the long-sought goal of “customer centricity” … and will cost a lot less in the long run!
In summary
We believe that the operational impacts of the new regulation need to be considered holistically across all aspects of the sales, distribution, and manufacturing landscape. We also believe the tools exist to adapt existing infrastructure to accomplish both the goals of regulation and build more effective business practices. To be clear, we are not suggesting millions spent on brand new systems, but instead using the tools you probably already pay for to better understand and serve your customers. (read our blog on Digitising Sales and Distribution to see more on the approaches and tools available).
For more information on the new Consumer Duty regulation within FS, visit Hesmur.com
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email: info@hesmur.com
