The internet is awash with articles on the Consumer Duty, all asking: how prepared is your firm, what actually is the Consumer principle, how should firms interpret the cross-cutting rules and the four outcomes?
However, one aspect of the FCA's Consumer Duty guideline document that appears to have slipped out of the spotlight is the 10 expectations that the FCA expects firms to meet, in order to fully comply.
Now for a regulation that is “underpinned by the concept of reasonableness”, it seems strange that more attention hasn’t been paid to the 10 expectations that are outlined within the FG22/5 Final non-Handbook Guidance for firms. Afterall, reasonableness is in the eye of the beholder, so instead of seeking to interpret what the FCA deems reasonable, I’d highlight the 10 expectations as the backbone of any firm’s Consumer Duty documentation.
This is by no means a one-size-fits-all approach. How firms implement the Consumer Duty is still left to firms to decide. However, I hope this article can help provide some food for thought as to how well your current documentation will meet the Consumer Duty ahead of its implementation deadline at the end of this month.
The ten expectations
Below I’ll set out each of the ten expectations that the FCA hopes the Consumer Duty will achieve. It’s worth noting that these are all outlined in section 1.9 of the aforementioned FG22/5 document. I’ll also highlight a few strategies that could be incorporated within your firm’s FCA documentation to demonstrate compliance with the new Consumer Duty regulation.
So what do the FCA expect? Well, firms should:
- Put consumers at the heart of their business and focus on delivering good outcomes for customers.
- Why not introduce an anonymous staff feedback method, solely for staff to feedback when they think products, services or processes should be improved?
- Provide products and services that are designed to meet customers’ needs, that they know provide fair value, that help customers achieve their financial objectives and which do not cause them harm.
- How can you test the customer experience at your firm? You should conduct and document focus groups with customers, as well as undertaking mystery shopping exercises to gain an insight into their needs and experiences. Remember, the absence of complaints does not mean your customer’s needs are being met so relying on this as a measure in isolation would be a mistake!
- Communicate and engage with customers so that they can make effective, timely and properly informed decisions about financial products and services and can take responsibility for their actions and decisions.
- Document all customer feedback, whether provided formally or informally, to try and identify areas of improvement in terms of communicating with customers.
- Not seek to exploit customers’ behavioural biases, lack of knowledge or characteristics of vulnerability.
- Potential client vulnerability is becoming an ever-growing ‘hot topic’ for the regulator, so make sure staff have sufficient knowledge and receive regular training on different vulnerabilities and how to support these clients.
- Support their customers in realising the benefits of the products and services they buy and acting in their interests without unreasonable barriers.
- Can your firm document the sharing of good practice within the team? Regular, ongoing training should be adopted within the firm that is targeted on any areas of improvement that is identified through customer feedback.
- Consistently consider the needs of their customers, and how they behave, at every stage of the product/service lifecycle.
- A customer journey, outlining the firm’s touchpoints with customers, should underpin any consumer documentation. But you should go further and evaluate this journey and take into account how the experience of a customer will change throughout a service or product lifestyle.
- Continuously learn from their growing focus and awareness of real customer outcomes.
- Any complaints, whether resolved formally or informally, should be analysed with a root-cause analysis completed, to ensure the firm goes further than just dealing with resulting symptoms of the complaint and instead learn and adapt following real customer outcomes.
- Ensure that the interests of their customers are central to their culture and purpose and embedded throughout the organisation.
- There are four main drivers of culture; purpose, leadership, people and governance. Are all of these drivers acting to deliver good outcomes for clients within your firm?
- Monitor and regularly review the outcomes that their customers are experiencing in practice and take action to address any risks to good customer outcomes.
- Review customer interactions, drop-off rates and the various communication channels your firm uses to help identify the experience that customers are having, before taking remedial action to improve policies, processes or systems where necessary.
- Ensure that their board or equivalent governing body takes full responsibility for ensuring that the Duty is properly embedded within the firm, and senior managers are accountable for the outcomes their customers are experiencing, in line with their accountability under the Senior Managers and Certification Regime (SM&CR).
- The Consumer Duty needs to be regularly discussed at the highest possible level, and raised in all relevant discussions. Therefore a champion should be appointed, which should be a Non-Executive Director where possible, to ensure that the Consumer Duty is discussed in a meaningful way.
I hope the above is useful for those who are struggling to grapple with what meeting the Consumer Duty actually looks like! Above all else, remember the overarching Consumer principle: “A firm must act to deliver good outcomes for retail customers”. The FCA has great expectations that Consumer Duty will change the regulated landscape for many firms. If your firm properly embodies this principle, you are already off to a good start!
