Consumer Duty: The plans are approved…what next?
Intro – The FCA’s Consumer Duty:
The FCA’s Consumer Duty (‘the Duty’) is a key part of the UK regulator’s campaign to drive improved outcomes for retail customers.
In adopting an implementation approach, firms should take heed of the regulator’s rhetoric around the new Duty, which proposes wide-spread culture change across the industry, referring to a ‘fundamental shift’. This is not light touch change and the effort invested by firms should reflect just as much.
The Duty is a key part of the FCA’s three-year business plan, paving the way for firms to adopt a continuous data-led approach to ensuring good customer outcomes as part of a new higher standard. The rules require that firm’s consumers receive communications they can understand, products and services meet their needs and offer fair value and receive the support they need. Sustaining this will require firms to update a significant portion of their operating model and control framework.
What firms should have completed to date:
The rules required that firms gained Board approval for their Consumer Duty project implementation plans by 31stOctober this year, meaning that the first regulatory deadline has now passed. As such, firms should have mobilised and resourced their project team and appointed their Consumer Duty Board Champion, agreed the scope of the rules applicable, completed a current state assessment against the rules and defined and planned the activities required to reach compliance. Aside from approving the plan, the firms Board should have been engaged early on in the project and be well positioned to provide the necessary oversight and challenge.
What the FCA have said:
Whilst the publication of the final rules retained much of the ambiguity of the consultation paper, the FCA has been reasonably forthcoming in their support for firms. In October they issued additional guidance relating to the implementation plans, the Consumer Duty Board Champion, and closed products in response to a number of queries from firms, as well as holding several expert hosted seminars for each sector impacted.
Perhaps most helpful for firms was the reassurance offered by the FCA regarding their expectations for the level of granularity required within the plans. In our experience, most firms have identified the high-level activities and thorniest issues to resolve to achieve compliance with the Duty but are yet to fully scope the detailed activities or approaches required to get there. The regulator seemed to confirm this aligned with their expectations of where firms should be, though stressed that the plans should contain: a sufficient level of detail across the key areas in focus which have been subject to informed scrutiny; feasible timelines and resourcing to match these; and clearly established internal and external dependencies.
The key challenges we are seeing from firms:
Passing the first regulatory deadline has not given firms cause for pause. Instead, the most complex issues are rising to the surface as firms attempt to define the detail underpinning their high-level activities.
Some of the common challenges we’re seeing include the following:
- Agreeing the full scope of rules applicable to the firm’s business model. In particular, whether distribution firms now fall into the scope of a manufacturer where they design services; the extent to which a firm exercises material influence over products and services and their responsibility for ensuring good outcomes; and the activities which would bring a firm into the definition of a co-manufacturer.
- Defining ‘good’ customer outcomes and the standards under which firms should be assessing their products and services. As this is an outcomes-based regulation firms should be defining their standards for ‘what good looks like’ and working back from there to understand the processes, data and MI required to measure the extent to which their products and services are providing fair value.
- Agreeing how ‘value’ should be defined, assessed and evidenced under the price and fair value outcome. The price and value outcome is frequently cited as the most challenging, as firms will need to clearly define what makes up the end product or service’s value proposition and justify its cost. This is new for many firms and identifying why a benefit is proportionate to its cost as part of the assessment approach is proving difficult, particularly where costs vary across target markets.
- Agreeing the approach to undertaking the products and services review as part of the implementation period. For example, what level of granularity is required given the timelines; what data should be used given many firms have identified they must improve their data capabilities to support Consumer Duty; and how firms should define their risk-based approach to drive a prioritised review of products and services.
- Defining the changes to a firm’s operating model and achieving a proportionate balance between necessary uplift vs. significant overhaul. There is no one size fits all approach and the changes required will largely depend on the efficacy of the existing processes in place.
- Identifying the data required to support the assessment and monitoring of good customer outcomes including external data from other firms in the distribution chain and ensuring it’s of sufficient quality.
What firms should be focussing on next:
There is not one aspect that can be considered more important than another as successfully implementing Consumer Duty will consist of a sum of multiple parts. However, given the timeframe to reach compliance, firms should be treating the approach to the review of their products and services with urgency.
Concurrently to the products and services review, the success of continued compliance in BAU is dependent on the early design and delivery of updates to the firms operating model and training and communications to support wide-spread culture change.
The necessity of good data and MI to support measuring and evidencing good customer outcomes will likely drive technology change and firms should ensure that the requirements are defined early on to enable both the products and services review and compliant processes in time for the regulatory deadline.
How BCS can help
BCS Consulting are experts in regulatory change and have supported a large network of firms with their implementation of high-profile regulatory initiatives. We’re supporting a number of firms with their Consumer Duty implementation and our clients benefit from the following:
- Insight from comparable firms we are supporting with their Consumer Duty implementation
- Experience in governance effectiveness to support the necessary oversight from the Board
- Extensive experience in regulatory change and a number of Consumer Duty SME’s
- Access to the broader Accenture network to provide industry leading advice and solutions across the key infrastructure changes necessary to support Consumer Duty including Data, MI, and Technology
Please get in touch with Dan Ridler and Tanya Austin who would be delighted to discuss with you further.
