July 2023 marks the second anniversary of Consumer Duty, the FCA’s tentpole regulation designed to set increased requirements for monetary companies and drive higher buyer outcomes.
Two years on, some companies have seized the alternative to keep closer to purchasers and made good progress in higher understanding their wants and tailoring service to ship higher outcomes.
By distinction, there are nonetheless companies which are behind the curve, whether or not it’s in complying with the obligation and getting to grips with principle-based regulation, or the wider expectation to embed these ideas into enterprise tradition, governance and management. Complacency stays an enormous situation as companies overlook the step change required to meet the FCA’s expectations.
Consumer Duty stays the cornerstone of the FCA’s total regulatory method. Even with a remit of deregulation, the FCA views Consumer Duty as the principal method to drive development and innovation in the sector. So, whether or not companies prefer it or not, Consumer Duty is right here to keep. With two years beneath our belt, how can we ship the change the regulator wants to see?
Customer vulnerability
One of the largest areas for enchancment is buyer vulnerability. In its current multi-firm vulnerability evaluate, the FCA recognized that companies nonetheless can’t successfully monitor or take motion on outcomes for weak prospects. This is hardly shocking – figuring out weak prospects has lengthy been thought-about the most tough facet of Consumer Duty.
Although we are all weak in some unspecified time in the future in our lives, many companies nonetheless report only a few, or zero, weak prospects. This simply isn’t sensible – particularly when the FCA’s Financial Lives survey discovered that 49% of UK adults have a number of attribute of vulnerability.
Part of the downside is many companies’ reactive method – ready for customers to inform them of their vulnerabilities. Or focusing on only a subset of their buyer base – or one channel, resembling claims or complaints.
While it is a good place to begin, it doesn’t give companies something like the full image. To attain that true proportion, the FCA has repeatedly stated that companies want to “actively interact” with customers; that is nonetheless proving to be an actual stumbling block for a lot of.
A scarcity of high quality knowledge
Whether it’s ignorance or a piecemeal method to engagement, companies inevitably develop into data-poor – unable to exhibit honest worth, good outcomes or wider compliance with Consumer Duty. The FCA has seen examples of some companies repackaging current knowledge with out actually serious about the data wanted to really perceive outcomes.
Our expertise is that by participating instantly with all customers utilizing a vulnerability evaluation, companies can purchase the sturdy knowledge wanted to not simply determine their weak prospects, however to monitor and report on the outcomes that prospects obtain. Crucially, these evaluation strategies have to be constant and goal to generate the high quality of knowledge wanted.
As knowledge requirements enhance, we can have a look at knowledge sharing throughout the distribution chain – this might carry new ranges of effectivity to Consumer Duty and permit us to really put the buyer first. The total course of would lastly develop into joined-up – and much smoother for customers as they share their data as soon as for all events to act upon in a constant method.
Technology is accessible
The regulator is aware of that companies face an arduous activity, which is why it has lengthy advocated for know-how adoption to assist meet the necessities. Rather than including nondescript tick containers to CRMs, or expending each money and time of creating methods in home, companies can use considered one of the many digital platforms already out there to overcome these key challenges. In the two years of Consumer Duty, these methods proceed to not solely get higher but additionally lead the method in what’s potential.
Technology performs a essential function in bringing consistency not solely to assessments but additionally to how data is collected, standardised and recorded. Just as essential is objectiveness; this can’t be achieved via human decision-making – nevertheless effectively educated, advisers, brokers and frontline workers will at all times be subjective.
Technology has to be the precedence for monetary companies companies in yr three. Not solely does it drive efficiencies, it brings consistency, scale and price financial savings which can’t be achieved via a handbook method or coaching.
The future
Given the current focus by the authorities on deregulation to stimulate financial development, Consumer Duty has discovered its future in the highlight. The Chancellor’s current Mansion House speech noticed some in the business taking her feedback out of context – and pondering it’s throughout for Consumer Duty.
The shift to principle-based regulation and a spotlight on outcomes is a big transfer. It ensures client safety whereas additionally offering flexibility for development. It’s a ahead step, but it’s nearly as if companies need to return to the prescriptive tick field regulation of previous.
Firms which haven’t embraced Consumer Duty and vulnerability administration underestimate the worth and development alternatives which is able to spring from growing client belief in monetary companies. Much of the discuss up to now has been much less about the carrot and extra about the stick – and this isn’t useful.
In our nook of the market, we see tangible examples of actual business advantages for companies – not simply from delivering a extra personalised service – however leveraging the vulnerability knowledge they generate to make higher lending choices and finally launch new and highly-targeted merchandise.
There will at all times be these bemoaning the regulation and searching to slash what they understand as pink tape. I firmly consider that, as Consumer Duty continues to develop, we see extra examples of business achieve and higher buyer outcomes – and the Duty deniers will both retire or be late to the celebration as soon as they realise what they’ve been lacking.
Andrew Gething is managing director of Morgan Ash
