Consumer Duty: culture, people and data

Over the last 12 months, Elephants Don’t Forget have run a popular Consumer Duty webinar series that has been attended by 1000s of financial services professionals.

We have been fortunate to collaborate with several industry leaders and specialist consultants within the fields of Training & Competence (T&C), compliance and risk, and front-line operations; collecting their thoughts and observations regarding challenges and approaches to Consumer Duty that they have seen during this period.

We have also accumulated candid poll feedback from your industry peers. Our Consumer Duty series – available here – has explored a range of key topics, including: practicalities and challenges of implementation, data sources and MI aggregation, cultural progression initiatives, front-line training support programmes, and ways to successfully embed and evidence best-in-class compliance with Consumer Duty.1

In this article, it is my intention to share a critical review of some of our key findings, with the objective of supporting firms to get a sense check of where they currently are. I will also offer some opinions that may challenge your current perceptions on areas associated with culture, people and data; three critical elements that – I think we can all agree – are foundational components of achieving successful compliance with Consumer Duty, and – more pertinently – strengthening trust in the sector and improving outcomes for consumers.

I will also offer some opinions that may challenge your current perceptions on areas associated with culture, people and data; three critical elements

Culture eats strategy for breakfast…
When I think about Consumer Duty, two infamous maxims – credited to management guru: Peter Drucker – often spring to mind: “Culture eats strategy for breakfast” and “What gets measured, gets managed.”

I think we can all recognise the sentiment underpinning these phrases and – in the context of Consumer Duty – we can say that a genuine customer-centric strategy is very likely doomed to failure in the long term unless there is a comparable “people” culture underpinning it. Likewise, failing to (adequately) measure what (genuinely) matters – more often than not – simply serves to drive more systemic challenges and continual firefighting of underlying issues that are “inputs” of culture.

Within organisations – often in the absence of prescriptive guidelines for “everything” – we know that staff rely on their organisational culture – and individual competence – to guide, influence and inform their responses to day-to-day situations, expected conduct and behaviours.

The FCA are well-versed in this mindset too; hence why the theme of culture has continually run in parallel – and constantly been reiterated in subsequent speeches over the years – with high-level regulatory principles like Treating Customers Fairly (TCF).

Yes, culture has always been seen as difficult to define and change. The FCA acknowledge this. There is no singular, definitive or prescriptive view of what a ‘good culture’ is. However, there are fundamental principles and “inputs” that the FCA believes shapes appropriate culture.

Cultural inputs: getting back what you put in…
I think back to a speech made in 2017 by the (then) Chief Executive of the FCA – Andrew Bailey – ‘Culture in financial institutions: it’s everywhere and nowhere’, in which Bailey outlined the regulator’s view on cultural expectations.2

Bailey expressed that: ‘culture emerges from inputs’, that ‘firms are responsible to ensure that their desired culture is consistent with appropriate conduct outcomes’, and that firms must ‘identify the drivers of behaviour within the firm and control the risks that these drivers create’. For the FCA’s part, their judgement as to whether inputs were producing appropriate culture and outcomes within firms was by seeking answers to whether practices around recruitment, performance management, reward and capability were driving positive behaviours and creating a culture that works in the long-term interests of the firm, its customers and market integrity.

Any of this sound familiar? Fast-forward to 2023 and the regulator is still banging the cultural drum. Now, we have the four key drivers of culture, and the FCA has provided their definition of it as: ‘the habitual behaviours and mindsets that characterise an organisation’.3 As an aside, I think ‘habitual’ is a key word to remember in the context of Consumer Duty: consistent, continual, persistent – create the climate you need to get the culture you want and continually look at your inputs and outputs, is the sentiment I take from this.

So – by now, as we approach the July 31 implementation date of Consumer Duty – you would reasonably expect that firms get the regulator’s point with regards to the importance of culture underpinning this change. Principally being that: organisational culture that supports good conduct, behaviours, capability and outcomes is not a new concept. And, ultimately, a healthy culture is one in which firms strive to go beyond a mindset of rule-based compliance towards a shared responsibility for ensuring the right outcomes for consumers within their day-to-day activities.

Consumer Duty: will it evolve culture?
We know that Consumer Duty has been positioned as the corrective cornerstone of the FCA’s three-year strategy to evolve how we see – through further enhanced data and evidence requirements – genuine customer-centric cultures in practice; and this is fundamentally what the regulator is looking to achieve. However, the big question is: will all firms correctly interpret the requirement and put enough emphasis on culture and people as a foundation for successful compliance?

If the regulator’s findings from their review of firms’ implementation plans to embed Consumer Duty is anything to go by, then some firms still have a way to go. And – critically – let’s not forget that this evaluation consisted of reviewing the plans of larger ‘fixed’ firms, which have a dedicated supervision team at the FCA, and where the regulator believes they are substantially in scope of Consumer Duty. Areas of culture and people improvement found that plans: ‘lacked detail in the area of culture’; ‘lacked limited information about how Consumer Duty will be embedded in their culture and people approach’; ‘provided little explanation of tangible action the firm needs to take’, and ‘gave no evidence of any consideration of how far their firm’s current purpose, culture and values do, or do not, align with Consumer Duty’.4

Yes, firms must set the right “tone from the top” but the regulator is also stressing that firms need to think more holistically – more qualitatively – around how customer-centric ideologies are authentically embedded at all levels of the organisation; there needs to be an “echo from the bottom”, if you will. There is little wiggle room for complacency too, with the regulator highlighting that Consumer Duty ‘will be a significant shift in what [they]expect of firms. It means making lasting changes to culture and behaviour to consistently deliver good outcomes’.5

Consumer Duty: exploring current challenges
In September 2022, we asked a cross-section of compliance and risk professionals what their greatest challenge would be for implementing Consumer Duty. There were two joint top answers. No surprise – given the timing of the poll – 44% said: ‘conducting a gap analysis between current processes and the new rules’. The other top answer: ‘developing a culture that takes a joined-up approach to customer centricity and propositions’.6

Culture is fundamentally about people. So, it is an inescapable reality that a firm’s people – especially the front-line; the staff charged with delivering Consumer Duty in practical terms and owning the risk on a day-to-day basis when interacting with consumers – will need to be evidently competent and capable in their roles to deliver against the requirements – and culture plays an essential role in this.

Circling back to Bailey’s earlier point on “inputs”, attaining and maintaining a customer-centric culture therefore means having the continual inputs that permeate the Cross-Cutting Rules and the Four Outcomes to create the best experiences for customers. So, in the context of T&C, I hope we can all agree that “a little bit more e-learning for staff” might not suffice.

T&C consultants that have joined us for our webinar series have told us they have seen a real mixed approach to Consumer Duty T&C. Some firms have done their mapping exercises and are quite happy and confident in terms of the knowledge and skills that are required. Some are looking to introduce T&C principles across all customer-facing and back-office teams. Others have adopted less robust approaches. For some firms, it is a line on the implementation plan; a “once-and-done” exercise they have to do because it is a requirement. Some have simply cut and pasted FCA guidance into their T&C arrangements or tweaked ‘fair outcome’ to ‘good outcome’ on a final check document. Some are planning on doing Conduct Rules training – eventually.

When I speak candidly with firms about their “people” challenges with regards to Consumer Duty, I get the impression that the “people-aspect” seems to have been deprioritised in some cases, primarily due to the fact that firms have had pressing priorities they needed to complete. Now – as we near Consumer Duty biting – we see that firms are increasingly becoming concerned about their people, their competence and capability. They recognise that they will need ‘buy in’, and they also recognise they may well need new sources of granular and actionable people MI that evidences an appropriate incorporation of Consumer Duty in their people and training approach.

To gauge sentiment on data confidence, in March 2023, 77% of compliance and risk professionals polled said they are only ‘somewhat’, ‘slightly’, or ‘not confident at all’ that they have the appropriate data/MI available to meet Consumer Duty obligations.7

Then, in May 2023, we asked two fairly blunt questions to a cross-section of compliance, risk, oversight, T&C, and operations professionals with regards to the competence of their people and their ability to evidence this requirement to the FCA. 67% said that they were only ‘somewhat’, ‘slightly’, or ‘not confident at all’ that their people have the required competence to deliver against Consumer Duty. 84% of them said they were only ‘somewhat’, ‘slightly’, or ‘not confident at all’ that they could evidence to the FCA that their people fully understand their Consumer Duty obligations.8

A dynamic and continual approach
Authentic compliance with Consumer Duty will continually need to evolve with changing customer needs and regulatory expectations. We see this with the FCA’s continual focus on vulnerability and the cost-of-living crisis, for example. As a result, firms will need to have a dynamic approach to compliance for which embedding the expectations of Consumer Duty into the firm’s culture and people will be paramount.

The regulator has provided helpful pointers on training pitfalls too. For example, in 2022, the FCA said they had found ‘limited evidence of MI from firms that demonstrates whether vulnerability training for staff is resulting in improved outcomes for customers in vulnerable circumstances’ and that firms should ‘think about how they can monitor the effectiveness of training as part of their strategies on vulnerability’.9 It is also worth remembering that – over the last three years – FCA Final Notice action regularly identified deficiencies in firms’ training programmes, highlighting a reliance on “one-size-fits-all” approaches, a culture in which employees did not complete mandatory training, infrequency of training, and the provision of limited and generic training which was not sufficiently targeted at employees’ roles to enable them to understand their responsibilities.

The underlying problem is that the majority of firms in the sector have followed largely the same employee T&C regime. On joining a firm, employees receive training across a curriculum of content, often through a variety of media. Then annual refresher training is conducted, sometimes en masse, and sometimes the “pain” is spread across the year. The refresher training is followed by a short-term memory test, where employees are frequently allowed as many goes as necessary to “pass”. The employer can therefore tick a box that training has occurred, and competence is (apparently) maintained.

All this method achieves is to record an event occurring. It has little – if anything – to do with an accurate reflection of employee competence. This approach is also widely resented by employees and fuels compliance fatigue – the exact opposite of what the regulator is hoping to achieve with Consumer Duty, where the very culture of the firm is embedded in customer centricity and good customer outcomes.

Is it time to review your approach?
The regulatory landscape has never been so complex, and the pressure on staff to learn and retain what is trained – and to individually translate this into in-role competence – is seemingly endless.

To mitigate the risk of non-compliance, many firms are now seeking a more modern, inclusive, and authentic approach to T&C; one that ensures their people genuinely understand their obligations and provides the firm with best-in-class data, MI and evidence of employee compliance. This is why over 80% of our customers come from regulated industries; with the majority of these authorised by the FCA and/or Prudential.

In interactions with firms, we can now see the focus on “people capability” gaining pace. Over one firm per week is now abandoning the default, tick-box, single-point-in-time refresher-training methodology in favour of our real-time approach to assessing, improving and evidencing best-in-class employee compliance.

So, if you would like to develop an authentic culture of compliance – and benefit from happier, genuinely capable, competent and compliant employees – get in touch to learn more.

Thanks for reading.