Upscaling your people processes to meet the demands of Consumer Duty


I’m not sure about you, but pretty much all the commentary I read on the incoming Consumer Duty (CD), is quite daunting. The root of this is several things; firstly, the sheer breadth of CD means it ‘touches’ every part of a firm, not just customer facing parts at the point of sale. Secondly, the focus on outcomes requires a complete mindset change, i.e. from focusing on processes and procedures to their consequences of their implementation and adherence, i.e. from thinking ‘inside out to outside in’. And lastly, at its core, CD is about culture and behavioural change within firms. And with the FCA saying it will use its emerging big data capabilities, to analyse firms’ behaviour without the need for data requests or supervisory visits. That sounds like a step change indeed to me!

Looked at it in this light, CD will be a major challenge for firms and senior managers, arguably more so than SM&CR – which at the time was seen as the most significant piece of new regulation for some time. And certainly, whilst approaching the implementation of CD will require a different approach, it does not necessarily mean starting from scratch. In my view, much of the good work put in by firms on their existing regulatory responses can be used as strong foundations for the change required by CD. And whilst the foundations laid by those previous regulatory responses will not always be enough, they will certainly be a significant contributor.

And whilst the foundations laid by those previous regulatory responses will not always be enough, they will certainly be a significant contributor

Let me provide some examples:

The FCA’s stated intention with the introduction of SM&CR was around cultural change and personal accountability. The governance structures required by the senior manager element of the regime and enhanced competence requirements by the certification process, were seen by the FCA as tools to help deliver culture change. If your firm is one of those that embraced culture change through SM&CR, then you will be well positioned for CD, however, for the many firms that simply implemented the procedures and processes because they had to and did not drive through cultural change, these firms will find achieving the changed required by CD more challenging. That said, the foundations laid by SM&CR gives all firms sources of data that previously may not have existed and will assist in a consumer duty context.

Let me provide some key touch points for firms:

Overall Responsibilities: Whilst the FCA says that it does not want firms to prescribe a single responsibility for CD to one senior manager specifically, as it expects senior managers to be responsible for CD in the context of their own role, for example, a Marketing Director would be accountable for product design, a Sales Director for the sales process and an Operations Director for post-sale customer support. These senior managers could use the discretionary Overall Responsibility to describe their responsibilities for their part of the customer journey.

Duty of Responsibility (DOR): All senior managers should already be familiar with the DOR and how they should be able to evidence how they effectively discharge their Responsibilities. These managers should extend their use of Reasonable Steps to cover their actions, and supporting logic, in relation to CD. For example, the Marketing Director could log the decisions they have taken as a response to outcomes-based data from his/her own function and/or customer surveys regarding the suitability of products they have designed and launched into the market.

Of course, the NED who is nominated as the CD Champion for the firm should be able to evidence their actions in pursuit of their responsibilities and how they are keeping CD ‘front of mind’ with the firm’s CEO and Chairman.

Committees: Each of the firm’s committees should be able to demonstrate via their meetings, minutes and actions log how the new CD is front and centre of their considerations.

Whistleblowing: the senior manager with the Whistleblowing Prescribed Responsibility now has a particular duty in relation to CD. They should ensure channels of communication are fully open to any potential wrongful behaviour in relation to CD. Similarly, they should not hesitate to refer this evidence to the board as soon as it is substantiated.

Breaches: Often linked to whistleblowing, investigations into any breaches by any member of staff, be it senior or junior provides a real opportunity to understand potential concerns from a CD perspective. If investigations highlight failings in the area of CD, lessons learned should be clearly shown to have been acted on, including any breaches caused by partner firms, bearing in mind the FCA expect to be notified if a firm identifies issues with a firm within the chain

If that is how SMR can support CD, the Certification Regime and Conduct Rules can also play a major role.

Conduct Rules: In addition to the existing 5 core Conduct Rules relating to all staff and additional 4 relating to Senior managers, a new Conduct Rule is relevant to all staff, i.e. ‘act to deliver good outcomes for retail customers’.

As part of the FCA’s review of the initial implementation of SM&CR within firms, it noted that Conduct Rules training was too generic in many instances. CD provides the opportunity to put that right. 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.

Certification: the regime itself is designed to evidence both competence and appropriate behaviour, through adherence to the conduct rules relevant to each individual. In addition, the certification element will enable firms to demonstrate wider competence in key roles. Therefore, evidence from these elements of SM&CR could be used as part of a firm’s data-set in the context of CD.

Training and Competence
Whilst not all firms are formally required to have a Training and Competence (T&C) scheme, there is most definitely a growing trend to apply this effective competence framework to a wider audience of firms and individuals within them.  That said, given that every firm operating in the retail and investment banking and insurance sectors giving retail advice should have a T&C scheme, this represents a significant number of staff where additional competence metrics will be gathered that can invariably be considered in the context of whether the firm (and the individual) is delivering good consumer outcomes in their role.

For those firms with T&C schemes, like Conduct rules and Certification, the data provided by the application of the schemes should provide senior managers with a rich source of data that could be part of the people centric data that CD will demand.

Other Regulatory Processes
In addition to SM&CR and TC&C, both of which are ‘people centric’ regulation, there are several other regulatory processes within firms that will provide potential valuable data on CD from the consumer perspective., Let’s consider for a moment both the on-boarding of customers and then the management of their concerns when things go wrong.

Know Your Customer (KYC): The customer data gained from KYC processes provides valuable insights for organisations when set alongside other data, such as sales, as to whether their products are being taken up by their intended target market. Potential disconnects between intended and actual customers buying a firm’s products and/or using its services should lead firms to further investigate the causes of any disconnect and therefore possible non-conformance with CD. Of course, firms who are already subject to the PROD rules will have a head start in respect of CD against those that are not subject to them. However, as we have found on many occasions, just because a Rulebook says firms should be doing things and doing them in a certain way, doesn’t necessarily mean that all firms do.

Complaints Management: Complaints should provide a rich source of date for firms in understanding the extent to which their behaviours are creating ‘good outcomes for consumers’ as required by CD. The number of complaints made, complaints upheld, timescales for resolution and typical redress payments paid and all aggregated over each regulatory reporting period, will provide firms with powerful indicators about how the organisation are meeting customer needs (or not as the case may be) across all areas of an organisation’s operations. Additionally, the root cause analysis required of firms by DISP should provide deeper insights into the areas within a firm’s policies and procedures, pointing to where things need to change to ensure that the firm delivers against the new CD requirements. If used wisely, complaints data will provide valuable information into all four consumer outcomes and so helping firms adjust their products, services, behaviour and/or approach in line with the FCA’s expectations.

At the end of the day, what will be a key tool in a firm’s approach to achieving all that CD seeks to deliver?  Evidence, Evidence, Evidence.

If evidence is the key, how might firms achieve what might be required (bearing in mind the FCA has said it will not define new regulatory reporting on the topic or define what data a firm should consider.)

Part of any organisation’s response to such all-encompassing regulatory change such as this must surely be the potential utilisation of RegTech to help firms not only with their process and people management, but with their production of meaningful MI.

Any implementation plan put before the board for sign off in respect of CD will surely have a technology component, won’t it?

If we consider for a moment some high level areas where RegTech has already proven its worth such as…..

  • Streamlining and Auditing Marketing
  • Effectively on-boarding new customers
  • Improving Risk Management and oversight
  • Supporting good Corporate Governance
  • Strong people management and oversight
  • Effective complaints management
  • Enhanced Time and Cost Savings
  • Improved clarity over accountability
  • Data creation for regulatory reporting

Surely senior managers will be missing a trick if the more effective use of technology in pursuit of good consumer outcomes is not a key deliverable of this project.


About Author

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Julie Pardy is Worksmart’s Director of Regulation and Market Engagement. Julie is a dynamic, highly engaging, professionally qualified individual who has worked in the field of financial services for the last 25 years and has extensive experience of a wide number of areas such as Regulatory, Governance, Business Quality, Conduct Risk and Behavioural Economics to name just a few. Worksmart has built its reputation by supporting the UK’s leading financial service businesses through the challenges of regulatory compliance. From Training & Competence to Quality Assurance, SM&CR to Complaints Management Worksmart enables smarter business responses. Whether working with an SME or a large corporation, Worksmart’s software solutions create business improvements that also meet the demands of regulatory change. Worksmart software solutions are simple to configure, easy to implement and will help streamline your business processes. With deep experience, comprehensive, award winning product set and wide ranging expertise, Worksmart can be trusted to ensure regulatory change is turned into business advantage.

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