Consumer Duty – Where Do We Start?

Chris Martin, Claire Wallace

In this article we take a look at the FCA’s new Consumer Duty proposals and what it means for firm’s implementation plans when combined with the FCA’s new 3-year strategy and approach.

Verdict: A new approach that has a significant impact on firms

We wondered whether the FCA’s new Consumer Duty was initially going to be somewhat of a TCF re-brand, but with a renewed focus. However, the new requirements set out in last year’s two consultation papers highlight that this is a major change in standards and approach which will impact firms, their internal processes and controls significantly.

The new Consumer Duty proposals, followed by the FCA’s new 3 Year Strategy and Business Plan, look like they are truly changing how the FCA will supervise and interact more promptly with firms. The FCA’s new approach to be data-led means that firms will need to ultimately respond quicker to identifying, reviewing and responding to potential risks and issues internally, so that it can adequately manage any risks ahead of potential interaction with the regulator.

What is so different?

The Consumer Duty brings significantly higher expectations from regulators as to the steps firms need to take to ensure they are delivering good outcomes to customers. This requires an ability to monitor and take a holistic view as to whether products and services are delivering good outcomes. This means less of a focus on processes and controls themselves and a greater focus on the end result – this requires a change in mindset in addition to changes to frameworks.

There are a number of areas where firms may need to make changes in respect of product review processes, consumer communications, outcomes testing, governance and oversight arrangements, integrating customer outcomes into conduct risk frameworks – to name a few. However, one area that some firms may need to get started on sooner rather than later is potential new / updated technology solutions and data capabilities to support the new requirements.

The FCA expects firms to have access to sufficient information and data for it to be able to conclude and evidence that it is meeting the four outcomes under the Consumer Duty. Management Information (‘MI’) at a team through to Board level that is timely, complete and accurate is more important than ever.

This may require new information on customer behaviour, costs, customer testing / engagement, use and distribution of products / services, customer interactions, outcome reviews and effectiveness of policies and procedures alongside more traditional MI.

Over recent years the FCA has already adopted a faster data-led approach with respect to certain areas, such as suspected market abuse where firm engagement happens quickly. Those that have had to deal with these requests understand the large volume of information that needs to be identified, collated, reviewed and provided in a short space of time. We expect a similar approach to follow in areas where the FCA will soon have access to substantially more data in a shorter timeframe – combined with new technology to automatically filter out and direct supervisors where they should be looking.

Firms will therefore need to ensure its data model is able to support the swift identification of potential issues and risks to be able to internally review, mitigate and potentially remediate before the FCA comes knocking.

So…Where should we begin with implementing the new requirements?

The FCA has stated it expects firms to have begun its preparations and to use the implementation period fully, and has committed to carry out work over the next 12 months to engage with firms and assess their plans.

In our view, the key is to quickly assess the impact of the new requirements and understand the workload for the next 12 months. We suggest the following initial steps that will help design the implementation plan and those areas that will take longer to implement:

  • Get an Executive sponsored programme mobilised to review and oversee the changes that will be required (processes, governance, documentation and culture)
  • Take time to review, document and understand the new requirements and how they impact your business model
  • Review existing FCA guidance and findings from recent reviews where they have highlighted existing expectations e.g. product governance thematic review
  • Identify all areas of the business that are potentially affected e.g. MI, data model, Senior Managers & Certification Regime (‘SM&CR’) arrangements, assessment of value, product governance, consumer support, marketing and communications
  • Understand any initial gaps and priority action areas (e.g. changes to product reviews, baselining customer current understanding of products) that may take significant time to implement
  • Create a prioritised implementation plan to map out the key activities to be completed and by when

Contact Us

Alpha has developed a Consumer Duty Toolkit to support our clients with implementation, if you would like to discuss how we can support you or would like to discuss the new consumer duty proposals further, please get in touch here.

[1] Courtesy of FCA CP21/36: A new Consumer Duty: feedback to CP21/13 and further consultation

About the Authors

Chris Martin
Chris Martin
Associate Director

Chris is an Associate Director at Alpha with more than 15 years of experience across consulting, the regulator and industry, including as an ex-Head of Compliance & MLRO.
Chris leads Alpha's consumer duty proposition within the Regulatory Compliance & Risk Practice and has extensive experience in helping firms interpret and implement new and existing regulations.

Claire Wallace

Claire is a Director at Alpha with more than 20 years experience across the UK regulator, head of compliance roles and consulting. Claire leads the work that Alpha does in respect of regulatory change more broadly, of which Consumer Duty is a key focus.