Five steps to drive Consumer Duty implementation and long-term gains

The significant work already completed has helped firms to better understand their customers’ needs, and identify areas where enhancement is required. Flexible plans allow firms to incorporate what they have learned, as well as good practices from the market, to drive better outcomes for the future. For example, if an issue is identified with a lending product, the FCA would expect firms to proactively investigate investment products that use the same platform. Adding such reviews to implementation plans is key, even if some of the work continues after the initial deadline.

It's clear that the execution of these plans will require significant resources, both in terms of meeting initial requirements and ensuring that services are delivered in line with the duty going forward. Given short timelines and large scale budgeting requirements, resource assessment and allocation will need to be put in motion well in advance of the implementation date.

Ideally, board-level Consumer Duty champions can advocate for the duty’s importance and keep the organisation focussed on the necessary changes. Allocating sufficient resources to assess and deliver the expectations of the duty by July 2023 is key, but firms must look beyond the immediate implementation deadline and begin work on new capabilities (e.g., enhanced data management, customer insight generation) that they need for the long term. 

The FCA understands the breadth and depth of change required by the duty and acknowledges that day one will be the starting point on a journey of continual improvement. For instance, substantive compliance for day one may be delivered through manual reviews and interventions, with more automated monitoring to follow in the future.

From our experience in the market, most plans project that pilots, tests and the bulk of Consumer Duty programme activity will be delivered for day one, with ongoing work beyond July 2023 to further embed the duty into the business. For example, we expect the role of the second and third lines (risk management and compliance, and internal audit) relative to Consumer Duty to continue to evolve beyond the initial deadline. We have seen varying degrees of involvement by the second and third line across the market, but given the significant change being made up to the implementation date, substantial second and third line review across all areas is likely not possible for many firms before day one.

However, the duty clearly sets out that assessment of customer outcomes should be a central focus for the audit and risk functions. They should adopt the perspectives of customers, not only a view of internal commercial or materiality, in how they prioritise and evaluate observations within their reviews. Firms should not overlook the critical function played by the second and third lines in the run-up to the deadline and beyond, particularly as a key input to the annual board Consumer Duty report. 

Alternatively, some firms have had success by setting out high-level principles and then working out the key features customers value within a product or service. This approach is better suited to deal with the range of customers that use a product and the different ways they may use it. Whether customers receive value from specific features can be validated through a combination of metrics (e.g., market research, usage statistics). Such a set of holistic measures helps firms demonstrate that differences in pricing, features and structures of products are designed to meet customers’ needs, rather than being purported quality enhancements that customers may or may not actually recognise.

Products with complex distribution chains present unique challenges for implementation, including varying expectations and timelines among different firms. Firms that create financial products that others distribute are required to provide Consumer Duty data to others in the distribution chain by the end of April 2023. This is a tight timeline in itself, and firms receiving the data will find it difficult to interpret and use it effectively by July 2023.

The goal is to secure the information necessary to define and deliver good outcomes for customers. Firms need to evaluate key distribution relationships and, in some cases, may need to revise contracts and service level agreements (SLAs). Beyond legal reviews of these relationships, firms should assess whether their monitoring and governance structures are fit for purpose to understand and question the information received from other firms in the distribution chain.

The FCA is looking for a suitable degree of professional scepticism. Specifically, it wants firms to consider information from third parties (e.g., data on complaints and profitability of particular products) across the distribution chain to understand whether end customers are receiving good outcomes. 

Building comprehensive solutions for data-driven monitoring of customer outcomes will be a heavy lift for many firms. However, getting it right unlocks the real opportunity of the duty by positioning them to deliver good outcomes for customers at scale and in a sustainable way. The key challenge is how to make the available data meaningful and sufficiently granular to identify differences in outcomes for particular consumer groups, as well as aggregating it to inform strategic decisions.

Existing IT platforms, systems and databases may pose an obstacle if they are not integrated and can’t share data effectively. Firms are looking at how their customer data feeds decisions and how customers are supported. Some firms need to update their customer relationship management (CRM) systems and other decisioning models and systems. However, the goal is not a specific defined technology system change, but rather a revised technology architecture to better integrate disparate data sources and provide holistic decision-making insights. These insights should allow firms to make better decisions across the customer lifecycle, including when supporting customers through periods of stress and difficult life events.

Improvements to technical environments will also help boards gain confidence that the requirements of the duty are being met, primarily by providing evidence both internally and to the FCA as required. Lastly, advanced technology will allow firms to more effectively manage and use larger data volumes, drawing out insight from customer’s experience to enhance processes and controls and ultimately better serve similar consumers in future. In the absence of suitable and well governed systems, the push to better serve customer needs may instead lead to inconsistent decisions and incorrect use of sensitive or personal data.

Improvements to the technology and data management infrastructure will extend beyond the implementation date. We expect that firms will attempt to use existing data wherever possible, even as they seek to identify gaps to be filled through the use of proxies or manual interventions until these longer-term solutions are established. Such proxies and workarounds will be common, but will require significant effort to maintain, increasing the urgency for firms to develop viable solutions for the long-term.

Conclusion

Both industry executives and regulators recognise that Consumer Duty work will continue after day one. As Sheldon Mills of the FCA has acknowledged on the EY Consumer Duty webinar, while substantive compliance by the implementation deadline is required, but as firms continue to mature their capabilities, their “journeys may continue for many years afterwards to continually improve the outcomes for customers.”

Firms can view the duty in terms of the opportunity to better understand current delivery models and monitoring capabilities and to design innovative approaches to improve consumer outcomes. Meeting the implementation deadline of July 2023 will be challenging enough, but firms should remain focussed on the long-term benefits of embedding customer-centric principles at the heart of their business.