Okay, this is now my third article – part one and part two are here – where I attempt to predict what the Training & Competence (T&C) landscape is going to look like in the forthcoming year.
I guess I must start by holding myself to account for the predictions made in January 2024. How accurate was I? Well, you be the judge.
My first prediction was that the regulator was going to be disappointed at the pace of change in the sector driven by Consumer Duty. When it was introduced in June 2023 it was heralded (by the FCA of course) as one of the most significant changes in financial services legislation that would change the culture of the City for the better by enshrining, in law, the right of every consumer to expect and receive good financial outcomes from their suppliers.
Frankly, this has not happened.
I was contemplating typing “yet” but, as it stands, I don’t believe we are on a genuine trajectory that will achieve the levels of change that the FCA envisaged. Certainly, in nothing like the desired timeframe.
The rationale behind my prediction was the difference between intrinsic motivation and extrinsic motivation. From comments posted from thousands of compliance professionals in webinars we have run this year, the mood music is certainly one of extrinsic motivation driving the current change.
That is to say most firms are acting because they have to, not because they want to and/or because the regulator has intervened and enforced change. This type of motivation – whilst it might trigger knee-jerk change – won’t ever achieve the levels of deep cultural change the regulator desires. For that to happen, firms, specifically C-Suite, must deeply desire this change to happen. I see very little evidence of this fundamental cultural or mindset shift in 2024.
But we do hear from literally thousands of T&C and compliance professionals of their desire to move away from a tick-box compliance culture, to one where employees are given the training, tools and support to conduct their role in the letter and the spirit of the legislation.
Obviously, this impacts how firms approach T&C and – whilst as a business we are seeing record number of firms moving away from the traditional tick-box approach to employee T&C – the vast majority (and we are talking tens of thousands of firms) have no intention of changing. Despite the FCA apparently upping the ante and specifically citing inappropriate “tick-box compliance” practices deployed throughout the marketplace and “one-size-fits-all” training, the transition to a more authentic learning culture is, at best, glacial and restricted to Tier 1 brands with either enlightened C-Suite or operational leadership, who recognise the value of a genuinely competent and compliant employee.
“The Duty isn’t something where you can tick the Consumer Duty box on your to-do list and move on. It’s something that needs to become part of who you are as a firm, your culture, and how you do business, running across your whole organisation from Board to front-line delivery, from product design to communications and customer support.
Consumer Duty: Not once and done
I think that from a sectoral perspective the regulator will be doubling down on the e-payments sector, who have, just recently, come in for FCA criticism for their “interpretation of Consumer Duty”. The regulator has clearly said do not wait for us to
come to you to tell you what you are doing wrong, get it right, now.
We expect the Consumer Duty to be a top priority for you personally. We want good outcomes for customers to be at the heart of firms’ strategies and business objectives, and leaders have a key role to play here. We expect firms’ Boards and senior management to embed interests of customers into the culture and purpose of the firm.
Dear CEO, Implementing the Consumer Duty in payments firms
One just has to look at how materially the FCA acted over variable commission payments in the car finance space and the potential for this saga to spill into all commission payments related to the consumer finance supply chain. The latter I simply do not agree with. Common sense versus common law. I want to find any consumer in the UK who genuinely believed car retailers and brokers were offering them credit because they were “nice people” and not because there was a commission involved.
The fact that the scale or nature of that commission wasn’t disclosed to the consumer, did not affect the value the consumer received from the transaction. The consumer, in every case, was free to compare and contrast the funding offered with their bank, other specialist lenders and even comparison sites. The idea hundreds of thousands of consumers were disadvantaged to the scale of the commission payment is frankly ridiculous. The margins in this highly competitive market are very tight. Money made via finance commissions would simply need to be made on the costs of the asset, i.e., the price of the car. There is no “over-charging” and there is no consumer detriment. Therefore, sanction should not involve recourse to the consumer, rather punishment of the firm who breached the law. The two things are very different.
Whilst I accept that consumers need to be protected from unscrupulous suppliers, I do not accept that suppliers should consider every consumer a moron and spoon feed them through even quite remedial financial transactions. We all know where this will end up. Consumers being read scripts that last 20 minutes, explaining every nauseating aspect of the transaction, which few, if any, listen to or even understand and just subsequently blandly agree to as they watch Netflix.
I see today that Charlie Nunn, CEO of Lloyds Banking Group, was making the point that this ruling was making the UK a less investable nation, and banking and finance more risky than other jurisdictions. Essentially reducing the competitiveness of the UK. I think that the Government will be forced to intervene and, in one form or another, reverse this decision.
I also predicted in my 2023 Nostradamus that the regulator would fall woefully short of its trumpeted use of AI to enforce the law. I can see little if any evidence of this during 2024. In fact, I could perhaps say just what was the FCA’s AI doing to support suppliers in the High Court ruling that consumers had suffered detriment? Where was the mass social media outpouring that consumers had been ripped off because the vendor didn’t disclose the value of commission involved in the finance transaction. Truth is, I suspect, either the AI was largely useless and/or the social media tsunami only happened when claims management companies made it so!
For those who question this is not the remit of the regulator, I would suggest that when you champion law that puts consumer fair outcomes at the heart of supplier’s strategies, you have a duty to act when consumers are adversely affected, howsoever this may occur. And let’s be clear, compensating consumers to the tune of tens of billions of pounds for detriment they didn’t suffer, is going to restrict supply, reduce competition and increase the cost of credit. Rather the opposite of the intent of Consumer Duty! There needs to be a balance between common sense, common law and the letter of the law.
My next prediction is that the Labour Government will step in and scrap chunks of legislation and regulatory red tape. Labour sees the City as the powerhouse of the UK economy and believe the FCA have, through various laws, hindered the ability for firms to take risk and enjoy the rewards. Without knowing the legislation, they will scrap its “hard-to-map-to-T&C” impact. But I would say only this: if firms are “allowed” to take more risk, it is likely that employee T&C will be far more important than employee box-ticking compliance, and that this may be the catalyst the sector needs for C-Suite to desire cultural change.
I also predict that the Labour Government is, with its uncanny business acumen, going to publicly act against the FCA. This maybe by forcing changes in legislation or calling for leadership and cultural changes at the FCA. I am a fan of legislation that reasonably protects the consumer, but not when a regulator over-steps the mark and becomes embroiled in price control. Here they are out of their depth and need sanctioning. Watch this space.
“Chancellor Rachel Reeves will next month issue a formal edict to the City of London regulator to prove it is serious about its duty to support growth. […] Officials said the FCA was a “constant source of frustration” to ministers, who rail over the complexity of the regulator’s 10,000-page rule book and some of its decisions. “They need a bit of a rocket,” said one.”
Financial Times, 26 September 2024
My next prediction goes to the heart of T&C and that is the third outcome under Consumer Duty legislation, i.e., Customer Service. The regulator is unhappy with widespread cost-cutting of retail banks and other large financial service retailers who have implemented “digital-first” service strategies at the expense of consumer service standards.
“They used to say the British didn’t complain. We were known for our sense of reserve. But the apparent death of customer service in the UK has moved the national conversation on from talking about the weather.
Today, we’re more likely to bond over our gripes with banks, energy companies, online delivery firms, airlines, car insurers, retailers, dodgy broadband providers, the taxman . . . Everyone, it seems, has a problem that urgently needs resolving. […] If firms want to cut costs by using chatbots or other technology to filter out simpler queries, the staff they do employ need to be capable of solving increasingly complex issues.
After wasting time exhausting a chatbot’s doom loop of questions, the sight of three flashing dots usually signifies that your problem has been shunted up the chain to an actual person. Yet how often do you get through to this person only to find that they stick rigidly to a script?”
FT Magazine, ‘How did customer service get so bad?’
Right now, employers aren’t really seeing the impact of these decisions on customers or employees, but it is starting to happen. I predict switching will rise. I predict staff attrition will increase, and I predict recruitment of talent into the sector will become increasingly tough. And I predict that the regulator will take enforcement action on the topic of Customer Service against one or more large firms in 2025.
And my penultimate prediction is that the regulator will come down hard on firms who fail to ensure the customer understands what they are buying. PRIN 2A.5 Consumer Duty: retail customer outcome on consumer understanding.
Yes, marketing has a role to play to make sure products and services are appropriately targeted, and that any sales collateral is clear and understandable. But the real rub is when a consumer has any interaction with a firm during the purchase process, the agent/employee really needs to know their stuff. Hiding behind scripts and self-serve customer declarations is going to end in tears. Yet many firms have done just this and treated Consumer Duty as “TCF on speed” as one commentator put it. I predict a large number of firms will be found wanting and the regulator will be forced to intervene. If so, as in the case of e-payment firms where the regulator has already been there, I think we can expect a further flurry of S166s for this remedial failing.
Finally, and I’m on a roll now, and I will probably get cancelled by Paddy Power, I predict that customer vulnerability, or rather firms’ failure to adequately deal with customer vulnerability will be a huge feature of 2025.
If, as I predict, these customer-service failing “outcomes”, backed by Government intervention, come to pass then employers will be faced with both intrinsic and extrinsic reasons to act.
Ticking boxes will become so obviously inappropriate and employers will be seeking solutions that genuinely deliver optimal employee competence within the legislation. Solutions that support employees on a daily basis. Solutions that facilitate better management support and visibility of the drivers of poor CSAT and, equally as important, poor ESAT.
If I am correct, tick-box compliance will rapidly crumble. You in T&C will be thrust into the spotlight to deliver competent employees who can think and act on initiative and treat every customer as an individual, which is, in my opinion, the deeper objective of Consumer Duty.
But I will leave you with a sage bit of advice given to me by a wizened old City Finance Director many moons ago.
“Welcome to the spotlight, Adrian. Heed my warning, spotlights have a nasty habit of turning into search lights and, traditionally, bullets follow search lights!”
In other words: make sure you are prepared and able to act when the motivation switches and your C-Suite get excited about genuine employee competence.
