The first anniversary of the Consumer Duty (CD) regulation has now passed, with board reports and attestations of conformance having all been signed-off. But now is not a time to relax, rather an opportunity to double down on actions and initiatives to continue to embed the challenges of the Duty into your organisation.
The Board Report is the ideal catalyst for this ongoing evolution, alongside more strategic initiatives that might seek to address some of the common failings of the implementation projects so far, things like insufficient consideration of how Consumer Duty would be embedded within firms and transitioned into BAU.
It also makes good business sense for firms to focus in on leveraging their regulatory obligations for any business advantage that can be gained from these progressions and changes. The links between customer experience, trust, reputation, sustainable success and how it impacts the overall experience of customers largely does, rely on how firms choose to comply with regulation.
You may say that the rigour demanded by T&C is no more than good people management
Consumer Duty demands a multi-faceted approach where accountability, governance, risk management, employee engagement, and data utilisation all play pivotal roles. The FCA certainly has an expectation for firms to track compliance & derive actionable insights for continuous improvement – this not only requires a solid set of metrics that boards can use to continually review conformance with CD but also that these metrics have detailed underlying data feeding them. Indeed, and expecting that no firm is ‘100% in compliance’, the regulator is expecting this MI reporting and oversight also includes scope to consider the implications of the data and contain remediation plans for those areas which put the firm at risk.
With all that in mind, the process of continual assessment and improvement demands that firms need to take the results of this year’s board report, review the underlying data and plan out what needs to be done to make their business more customer centric. But how?
Certainly, firms can take the learning from this first board report and make improvement plans based on the specific areas identified in the report. This makes sense in that, if challenged, firms can point to feedback and highlight the remedial actions taken against each identified ‘improvement area’.
However, if you think forward several years, this approach could well lead to a set of piecemeal actions which, whilst addressing specific area identified in the annual board reports, don’t really ‘join up’. Many firms may consider this enough, however, firms who are serious about CD may well consider a more proactive approach which focuses on the underlying people-based processes which, if done well, will prevent non-conformant behaviour in the first place.
The good news is that two of the key building blocks for ensuring consumer centric behaviour are already in place, namely T&C and SMCR.
T&C has been a cornerstone piece of regulation for financial services since the early 1990’s and, done well, provides qualifications, ongoing training, regular reviews and coaching for regulated staff. Importantly, in the context of CD, T&C schemes are also required to document all this activity. As such, not only does T&C provide a process for ensuring compliant behaviour it also provides a rich source of evidence to populate firms’ CD dashboards.
However, T&C suffers from several significant drawbacks. Firstly, the regulator only requires T&C to be applied to regulated staff, e.g. advisers, traders, investment managers etc. As such, the professional standards and development processes required by T&C are not, by regulation, required for many other categories of staff dealing with consumers. Whilst some firms have applied the disciplines of T&C to other customer facing staff, e.g. complaint handlers, this is not the norm.
Given the importance of staff behaving in a competent and consumer centric manner at every stage in the customer journey, extending the disciplines of T&C to all customer facing staff would not only provide firms with the confidence they are delivering the good outcomes demanded by CD, but it would also provide a rich source of evidence to demonstrate as such.
For sure, many would argue that extending T&C to all customer facing staff is unnecessary arguing internal performance processes are sufficient. However, T&C demands not only a more formalised process, e.g. regular reviews etc., it also demands a minimum set of activities, e.g. on the job observations. You may say that the rigour demanded by T&C is no more than good people management. However, it is this ‘good people management’ that is so patchy and difficult to embed on across an entire firm.
Similarly, SM&CR provides another opportunity for firms to harness what is already in place to both embed and evidence consumer centric behaviour. For example, using conduct rules training records as evidence of delivering good outcomes should be a ‘easy win’ for firms. However, as part of the regulator’s review of the implementation of SM&CR it noted that Conduct Rules training was too generic in many instances – an issue that many firms have yet to address today:
“Our evidence suggests that firms have not always sufficiently tailored their conduct rules training to staff’s job roles”.
Source: FCA SM&CR Banking Stocktake Report (05/08/19)
CD provides the opportunity to put that right and acts as a reminder that training for the new Conduct Rules should be role relevant, in other words, how does acting to deliver good outcomes for customers play out in an individual’s role. Doing this will take more resource to design and deliver but will provide significant benefit in supporting CD and, importantly, being seen to take CD with the seriousness the FCA expects, and in doing so this would provide another rich, firm-wide source of evidence for boards’ CD dashboards.
Similarly, this same report stated:
“Firms have broadened their approach to assessment of certified staff beyond solely technical skills, and managers are in a better position to assess the behaviours of their certified staff. However, most firms could not demonstrate the effectiveness of their assessment approach, use of subjective judgement or how they ensure consistency across the population”.
The ongoing challenges brought by recent regulatory change then, share the same underlying themes that have always underpinned T&C, that being the need and ability to manage and evidence the knowledge and competence of staff as necessary for them to fulfil their jobs effectively, and consequently, delivering good customer outcomes.
Make no mistake, whilst not grabbing most of the recent headlines, never have the principles and the underlying activities of T&C been more relevant.
