Consumer Duty – What Best (and Bad) Practice Looks Like
Here’s a snapshot of the key takeaways to help your company’s measures to meet the Consumer Duty demands.
Culture, governance and monitoring
Firms which have shown that Duty requirements are the responsibility of the whole business (and not just Compliance & Risk Teams or Programme/Project Teams), with increased focus at board level have been highlighted as those which show good practice. Some firms have also updated staff bonus structures and have developed new data and metrics to better understand their customers.
Some firms need better data and monitoring strategies – firms should not just be repackaging existing data – they need to think seriously about what information they need.
Vulnerable Customers
Firms need to have fully reviewed their approach, systems and processes relating to vulnerability. Firms which have done this have been able to evidence improved and consistent handling of vulnerable customers and are able to capture data and identify trends.
Some firms have yet to identify gaps in data or weaknesses in processes to track vulnerable customers – they are asking customers to identify themselves as vulnerable rather than being proactive in this area.
Products and Services
Some firms have adapted products or services to deliver additional benefits for their customers and have made positive changes to their product development processes with greater focus on how products will meet the needs of a specified target market and deliver good outcomes for them.
An area of weakness and as also highlighted in the recent FCA survey results is around sharing information effectively across supply chains – firms need to consider what information they need from each other, with the joint goal of delivering good outcomes for the customer.
Price and value
Some firms have made changes to improve their value proposition such as enhancing the benefits of products services – some insurance firms have enhanced product cover to include new benefits, widen the definition of certain policy terms in policy wordings to cover more eventualities, or increase product over limits at no additional cost.
On the other end of the spectrum, some firms are unable to show that products offer fair value and are unable to justify what benefits they provide for the remuneration they receive. Firms are also failing to share sufficient information to enable other firms in the distribution chain to properly assess value to the end customers and fees are added throughout the chain that might mean the overall cost to the end customer does not represent fair value.
Consumer understanding
Some examples of good practice here include changing the layout and presentation of content to improve clarity, simplifying language used and improving the accessibility of websites. Some firms have redesigned customer journeys, focusing on how consumers behave in practice and the risks of harm, to better support understanding. Customer interaction points and materials, such as call centre scripts have been improved and updated with training delivered so that staff are better equipped to support customer understanding.
Some firms need to improve on being clear in communications about what charges apply to customers and when. Firms need to ensure that they are considering the Duty and its requirements when approving financial promotions.
Consumer Support
Reviewing customer journeys and removing negative obstacles and ‘sludge’ practices is considered good practice – any obstacles that make it more difficult for customers to act in their own interests should be removed. Positive interventions to customer journeys have been introduced by some firms, such as new flexible repayment plans to support customers struggling.
Some firms have not been training their staff well enough in order that they can support good outcomes for their customers. Others have not taken the time to understand customer circumstances where they are in financial difficulty. The protection of personal data is also referenced here, and firms should be ensuring their systems and controls to prevent fraud or cyber attacks are robust.
What Firms need to consider:
The above highlights just some of the areas from the report. Firms should consider all of the FCA’s findings and continue to make improvements in line with the good practice identified and change anything that may sound familiar in the areas for improvement findings.
A common theme from this report and the recent FCA survey is that distribution chains need to work better – firms need to work together to share information and ensure the joint goals of the Duty are met.
Another recurring theme is data and monitoring. The FCA highlights that better data strategies are needed. We are carrying out work with our partner Ever Comply in this area and have some exciting developments to help firms to achieve the outcomes required – please get in contact if you would like to hear more on this.
A clear message from the FCA is that firms should not be waiting to see if they will intervene to address an issue – the Duty requires firms to proactively identify and address issues and risks of harm.
The annual Board report will be key – it will be used to assess and evidence how your firm has provided good outcomes for consumers under the Duty – the first report is due by the end of July so it is important you get this right as we are sure we will see the FCA sampling some of these reports and testing their accuracy. As usual, if you require any assistance in any of these areas, do not hesitate to contact us.
