Laudable aims, of course, but is this a revolution or evolution from previous regulatory initiatives such as ‘Treating Customers Fairly’ and ‘Conduct Risk’? Is Consumer Duty unfairly biased in favour of customers and against the needs of the financial services industry? Will it unreasonably raise consumer expectations?
Not necessarily. We believe that the Consumer Duty does not need to be a zero-sum game. We think that firms that understand and embed its principles, rather than applying a tick box compliance approach, or layering on additional requirements to existing complex approaches, will be best placed to gain a source of long-term competitive advantage.
How can firms embrace this change, measure and benchmark their progress? What should Boards look for to satisfy themselves that their organisation is deriving meaningful benefit from their investment?
Even by FCA standards, Consumer Duty is a very transparent initiative. This means that firms should expect scrutiny from, and on behalf of, customers to ensure firms are meeting the “high expectations for the standard of care we expect firms to provide for consumers” (led by the Financial Ombudsman and the FCA’s own supervisory teams). Firms face a real risk of suffering reputational damage if they execute poorly.
With a high bar, and fast approaching deadlines, firms are facing intense pressure to scale up their compliance capability in response. This is particularly onerous for medium and small firms that lack the resource for a large-scale compliance effort. But for all firms, bolt-on tick box and layered additional compliance processes could lead to the worst of all possible worlds, such as:
So, how can businesses operationalise such a wide-ranging regulatory initiative without becoming mired in regulatory or self-created red tape?
We believe that embracing the spirit of Consumer Duty provides an opportunity for organisations to re-think their operational and compliance processes, moving towards a first-line led approach that meets both customer and compliance needs by design, rather than as an afterthought.
Boards should expect to be fully engaged with this transformation, by shaping and sponsoring the Consumer Duty agenda and regularly reviewing progress against its objectives, not just at the point the Consumer Duty comes into force, but as an integral part of the way in which business performance is measured. Data gathering should complement performance measurement, enabling a feedback loop that leads to further enhancement, improved employee engagement and rewards performance aligned to consumer outcomes - as well as identifying training and development opportunities.
Reviewing a sample of implementation plans, the FCA said:
"Many of the plans we reviewed showed that firms have understood and embraced the shift to focus on consumer outcomes, established extensive programmes of work to embed the Duty, and are engaging with the substantive requirements, including the four outcome areas. We are convinced this will bring benefits for both consumers and firms.”
But must organisations resort to establishing an extensive, siloed programme of work? Or can firms leverage best practice to achieve effective compliance efficiently?
From our work with firms, we see a number of positive behaviours and common pitfalls that we would recommend firms consider.
We think embracing the spirit of Consumer Duty provides an opportunity for progressive organisations to re-think their operational and compliance processes, and ensure a strong relationship with customers. We believe the most progressive organisations will adopt an embedded approach to meeting customer needs, and differentiate through a more customer-centric approach to business.
This will help them to build long-term trust with their customers and meet their social purpose, which is much needed in financial services. It will also help them to build an approach to compliance that is more efficient and effective, and will enable the organisation to respond better and more cost effectively to the future requirements of regulation in this space, which we anticipate will continue to evolve and be refined over years, as they have over previous decades.
We are currently helping clients to assess their approach to Consumer Duty, not only in terms of regulatory compliance, but also helping them to cut through the detail to focus on what really matters to their organisation.
Crowe can help your business to be compliant by design and proportionate by default. Please get in touch with Justin Elks or Isaac Alfon for more information.
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