Consumer Duty – The Race is On

Claire Wallace, Chris Martin, Will Ayrton

Now the dust has settled on the race to get implementation plans in front of boards by the end of October, firms have started the New Year realizing the mountain of change required to be ready for the implementation deadlines. This is highlighted in the FCA’s report this week, which outlined where firms may need to develop their plans and approach further to ensure they meet its expectations under Duty.

We discuss how we suggest firms approach the design and implementation of a proportionate framework further below, but, before we do, we wanted to highlight a few other key areas where we see the greatest impact and challenge for firms.

Figure: Consumer Duty Key Impact Areas

Clients we are supporting may have slightly different approaches to implementation in a number of workstreams and timelines, but the above areas are fairly consistent in terms of where the most significant change and work is required. Many of these areas align with recently published FCA findings where they set out good and poor practice they have seen from recent information requests for implementation plans and evidence of Board engagement.

It is pleasing to see those areas we know some of our clients have been spending considerable time and effort on being acknowledged as good practice. That said, there is a lot of work to do across each of the key areas highlighted above and in the FCA report to meet their expectations and deadlines.

Everyone is talking about Price & Value

As alluded to above, one of the areas firms are rightly prioritizing, and which we do a ‘deep-dive’ in this article, is the design of an appropriate value assessment methodology for products and services, given the fast approaching end of April deadline for product manufacturer reviews. Alpha has typically seen firms approaching the value assessment of its products and services in one of two key ways:

  • Some early movers who have brought in a form of value assessment across additional funds when the COLL rules came into effect, are looking to adopt and adapt their previously agreed framework under these rules. Further extending the scope of funds that are assessed with that methodology, such as additional Alternative Investment Funds (AIFs) and now discretionary model portfolios etc.
  • The majority of other firms are looking to take advantage of the flexibility of the new requirements when compared to the existing AoV COLL requirements and create a more tailored and ‘proportionate’ approach to each specific product and service.

What Approach Should We Be Taking?

Regardless of the approach you take, at the heart of the assessment, it needs to consider what ‘good’ outcomes for the consumers look like and where consumers could be subject to potential ‘foreseeable harm’. These are ‘buzz’ words in the industry now, but what does this mean in practice?

We believe there is not a ‘one size fits all’ approach for all and firms should be considering the below factors in their implementation approach; considering learnings from the implementation of AoV (Assessment of Value) for UCITs funds over the last few years.

  • Integration with Product Governance – Assessing the value of a product or service should not be an isolated and standalone assessment. How value links with the wider product and service review needs to be considered to determine whether a consumer is achieving desired outcomes.
  • Materiality – To truly justify and evidence a ‘proportionate’ approach taken, firms need to have defined what ‘material influence on outcomes’ means in terms of the their role in the distribution chain. Once this is defined, alongside what ‘good outcomes’ means for clients invested in the firm’s product and services, this can drive the design of a proportionate framework and the evidence required.
  • Scalability – Given recent messaging from the EU, firms may want to consider whether they pre-empt any final decision from Europe and create a framework fit for purpose across jurisdictions. This will enable greater consistency across the fund range and allow firms to create efficiencies whilst evidencing a consistent and repeatable process.
  • Data Availability – For some products and services, data availability and truly compatible products is more of a challenge than UCITs funds under AoV. In our view firms should not start with what data they can get, but think about the benefits, costs and other market factors that affect the value a consumer receives and build their methodology around evidencing value through these factors.
  • Use of Technology – When implementing regulatory change, automation and technology are often seen as ‘nice to haves’, especially when timeframes are tight. In our view, the earlier the adoption, the greater the benefits. Often, we find that where there are already tools and data available in-house, workflow and visualization tools that can quickly be adopted to realize benefits and allow teams to focus on the true ‘value add’ tasks.

How Alpha Can Help

Alpha is already working with numerous firms across sectors to support their implementation of the Consumer Duty. We are also the leading consultancy in supporting firms with the design and implementation of value assessment and integrating these with wider product governance frameworks to meet regulatory requirements in a proportionate and pragmatic way.

If you would like to discuss how we can support you or would like to discuss your firms approach to implementing the new Consumer Duty requirements, particularly in light of the FCA’s recently published report and findings on implementation plans, please get in touch here.

About the Authors

Claire Wallace
Director, Regulatory Compliance and Risk

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.

Chris Martin
Associate Director & Consumer Duty SME

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.

Will Ayrton
Senior Manager

Will is a Senior Manager at Alpha with 7 years experience consulting within the financial services industry. Will has a range of regulatory and product experience, including the implementation of a global Asset Manager’s Assessment of Value and the delivery of a Product Governance workflow and reporting solution.