Preparing for the Consumer Duty: Five no-regret actions

08 February, 2022

Tessa Norman

Senior Manager, PwC United Kingdom

+44 (0)7483 132856

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As businesses digest the Financial Conduct Authority’s (FCA) second consultation on the Consumer Duty, many are thinking about the first steps needed to prepare.

While it may tweak some of the finer details, the direction of travel from the regulator, to introduce a new Principle which holds firms to greater account to deliver good consumer outcomes, is clear.

It can often be most cost-effective to wait for a final outcome from regulators before embarking on changes. But I’d argue the Consumer Duty proposals require a different approach, for several reasons. Waiting until the policy statement in July 2022 will leave an implementation period of just nine months. For many this is unlikely to be sufficient given the wide reach of the proposals, which will require firms to review their entire product suite and end-to-end customer journey, not to mention make other changes such as altering their Senior Managers & Certification Regime frameworks.

Given the FCA has already received a significant amount of industry feedback from the first consultation, the core principles of its proposals are unlikely to change. While it may tweak some of the finer details, the direction of travel from the regulator, to introduce a new Principle which holds firms to greater account to deliver good consumer outcomes, is clear.

A lower risk approach would therefore be for businesses to identify a number of ‘no regret’ actions they can take now. That will help them progress towards the FCA’s expectations, and ultimately have a beneficial impact on their business.

A gap analysis is the logical place to start. Depending on the outcome of that, no-regret actions are likely to include:

  • Identify priority products and services for further investigation or change. Establish which products/services (including those which are closed) are most likely to fall short of the FCA’s expectations on fair pricing and terms, and consider what changes can be made.
  • Identify any sludge practices. Processes or practices likely to be deemed ‘sludge practices’ (excessive friction that prevents consumers from making decisions in their interests) should be identified. The FCA is particularly concerned about post-sale processes, such as switching, claiming and complaints, and wants these to be as smooth as sales processes. A comparison of the two should highlight the most prominent issues.
  • Engage and support staff. Senior Managers are likely to be concerned about the implications of the proposals for their personal risk and accountability, given their wide-ranging and subjective nature. Staff may also have concerns about the proposed new Conduct Rule, which will apply to all employees, except ancillary staff. Ahead of introducing formal training, it’s important to engage staff and plan an appropriate governance and accountability structure.
  • Define good outcomes for your firm. Start working towards a framework for monitoring and evidencing outcomes, by defining what a ‘good outcome’ looks like, by product and channel.
  • Clean up data. Assess what data is needed to monitor and evidence outcomes against these good outcome definitions. Analyse what data the firm already has, clean it up, and identify what additional data the firm will need to gather. It’s also worth identifying any relevant learnings or frameworks that could be built upon, from the monitoring requirements under the FCA’s vulnerable customers guidance.

The FCA’s proposals will require a significant implementation programme for many firms, particularly larger businesses with legacy systems. They need to weigh up the risk involved in a ‘wait and see’ approach, given the short timeframe and risk of regulatory censure on such a high-profile initiative.

Creating a roadmap of activities, including no-regret actions in the first half of this year, will put firms in a better position to meet the April 2023 deadline.

Tessa Norman

Senior Manager, PwC United Kingdom

+44 (0)7483 132856

Email

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