Progress across the industry continues ahead of the incoming regulatory change, but all firms surveyed are currently seeking further clarity on rules
87% of firms say they need to implement key technology changes to deliver on the Duty, but 64% are not confident this will be completed by the April 2023 deadline
The new Consumer Duty represents one of the biggest changes to UK financial services regulation in over a decade, but, according to new research by EY, the majority of UK financial services firms do not yet fully understand what needs to be done to deliver, and evidence, good outcomes for customers.
The research – based on a survey of UK banks, insurers and an asset manager representing combined responsibility for over 60 per cent of UK assets under management – looks into industry readiness for the new Consumer Duty. The proposed Principle introduces a higher standard of expected conduct for firms and focuses more than ever before on placing the interests of customers at the heart of decision-making.
However, while 90% of firms rate their response to the Consumer Duty as one of their top three priorities, only 6% believe they currently know what the regulator will expect them to do to demonstrate customer centricity.
Heather Alleyne, UK Financial Services Regulation Partner at EY, comments: “The clock is ticking on Consumer Duty, and UK financial services firms must sharpen their focus on how they will deliver against one of the biggest regulatory changes in the last decade. Developing a response to the Duty requires a broad programme of work ahead of the new rules coming into force at the end of July 2022. With implementation currently expected by April 2023, the timeline is challenging for a change of this scale – but not impossible if firms prioritise where immediate action is required, and if budget is allocated now.
“Firms in the ‘early to market’ cohort will be in the strongest position as the deadline looms. Our research shows that while good progress is being made, a number of organisations are still struggling to interpret the requirements and determine the baseline and longer-term impact for their business – particularly in terms of overall implementation costs and the technological changes needed to meet the requirements.”
Broad focus and technology will be key to delivering the Duty
The wide-ranging scope of the Duty and the requirement for Board-level attestation mean firms need to interpret the rules and determine what is required across their entire affected business. Reflecting this need, the research shows that 60% of UK financial services firms are looking to meet the Duty’s requirements by taking a holistic, business-wide approach, often led by the CEO or a very senior executive, while smaller numbers are looking at narrower, more compliance-driven approaches.
Data and technology will act as key enablers and accelerators
Forty-two per cent of UK financial services firms intend to use a combination of data, testing, and enhanced monitoring to evidence ‘good outcomes’ for customers. In terms of focus areas for ‘good customer outcomes’, the survey shows that firms rate client communications (26%), customer relationships (26%), and records management (13%) as key areas requiring significant technological transformation in order to meet the requirements.
Linked to these focus areas, 87% of firms outlined a need to implement key technological change, with 42% anticipating significant ‘yet to be defined’ change. Nevertheless nearly two thirds (61%) of firms claimed to be confident that changes will be completed by April 2023, or that sufficient measures will be in place to provide a tactical fix by the deadline.
Cat Haines, UK Banking Transformation Partner at EY, comments: “Bringing Consumer Duty to life requires human insight. Firms will need a robust understanding of their customers, way beyond segmentation and demographics. This must capture the reality of how customers experience products and services, which will ultimately shape how firms respond.
“Clearly, data will underpin much of how the requirements of the Consumer Duty are met, and will be part of the process to unlocking the value of the data will bring far-reaching benefits across a business. To efficiently deliver on the Consumer Duty agenda, it will be critical to leverage data capabilities in a focused and deliberate way.”
Estimated costs sit within large range dependent on firm size
Ahead of the April 2023 implementation deadline, to deliver on Consumer Duty, smaller firms have estimated costs will sit within a range of £500k to £1m, while firms with a larger market share estimated a range of between £7.5m all the way to £50m.
About the Research
- EY conducted a readiness survey across 32 key firms across the financial services sector.
- Participants included 13 banks, 18 insurance firms and one major wealth and asset management firm, representing combined responsibility for over £3.3trn assets.