Following on from our last article that covered closed products and services, we now turn our attention to the last part of the Consumer Duty requirements which comes into place on the 31 July: that is, completing the first (of the ‘at least annual’) Consumer Duty report.
Arguably this is the single most important compliance task firms need to undertake this year. During the FCA’s webinar of 6 December 2023 Consumer Duty: The next steps, the FCA said:
“Like everything else about the Duty, the Board reports are not tick box. They serve a really important purpose, so we want to make sure they are working effectively and that Boards have the right data and the right MI as part of that process. So, firms can expect us to ask to see their Board reports, to make sure they are working effectively and that firms are taking a data-led approach.”
Getting started
Think about the resources you’re going to need to undertake the task:
- Time: from listening to our customers, we can say that it’s taking firms longer to complete their report than had been initially envisaged.
- People: It’s important that all those who hold a Senior Management Function (SMF) position in the firm are on board as this was an area for improvement that was highlighted by the FCA in February:
“Where the Duty is primarily driven by programme teams or risk and compliance colleagues, and isn’t discussed at Board level. Firms need to ensure that the focus on good customer outcomes is understood at all levels, in their strategies, leadership, and people policies.”
We think the best practice we’ve seen is where everyone in the practice shares their ideas and contributes to the report itself.
And most important of all:
- Management Information (MI): firms will need to decide what MI they are going to use within their report.
Management Information
It doesn’t matter what size of firm you are, your business will be awash with MI, whether this comes from your registers (for example: Advice, Complaints, Financial Promotions, Vulnerable Client or Breach etc.) or from your Training and Competence records. Think about the data you have that can be interrogated to the granular level of detail that the FCA expects.
Do also consider getting some MI by asking your staff and customers for feedback.
You could analysis the data between the different advice proposition that you offer, for example persistency levels across the ‘wealth builders’ and ‘post-retirement’ offerings and / or per adviser. For example, if 10 vulnerable clients have been identified by one adviser, but only one by another in the same time period, does that highlight a training need?
The outcomes from file reviews is an obvious starting point for most firms. Remember if the outcomes aren’t quite as expected, describe in detail the work undertaken to address the root causes of the issue, so that it should not recur.
How the firms deal with clients who have been identified as vulnerable is also a popular topic for many firms to include in their report. You will want to detail the numbers of clients and how they were dealt with; asking for staff and customer feedback would also be worth including in the report.
Whatever data you want to use, firms really need to look at what it’s telling them and what outcomes are being achieved.
The format
The FCA does not prescribe any format for the report. As a compliance support firm, we’ve provided a Consumer Duty reporting template and accompanying guidance document, but firms should concentrate on content over style. The report needs to be carefully personalised to reflect the firm’s own culture.
As well as detailing the MI, your report must also “Assess whether the firm’s future business strategy is consistent with its obligations under Principle 12 and PRIN 2A.” (PRIN 2A8.4). So consider if your firm is planning to take on new permissions, add additional advice propositions, take on new staff or buy / sell / merge activity for example. How the firm will mitigate the risks posed by these activities need to be detailed in your report.
In summary
The old saying that “If you fail to prepare, be prepared to fail” is worth remembering. Picking the right MI and people to complete the report is key.
Once completed, the report should be kept alive and not left on the shelf or in a drawer. Revisiting the report and monitoring outcomes at regular intervals can only help a firm be ready to complete their future reports.