Consumer Duty is Dead, long live Consumer Duty

Déjà vu?

Did you watch the FCA Consumer Duty (CD) webinars? Somewhat belated perhaps and certainly no Oscar nominations arising, but nevertheless, useful in so much as they confirmed a few things and raised a few questions.

Do you get the sense that we’ve been here before though?

You will fondly recall the Retail Distribution Review (RDR) and the sea change away from commissions to adviser charging? The Price and Value CD outcome is a pretty clear steer that the FCA is not happy with how firms have adapted to adviser charging, with for example, very strong pointers in the CD rules and guidance that fees should be commensurate with the service provided, and not be disproportionately skewed as a result of percentage charging.

And even though the Product Governance (PROD) rules are relatively young, they are being re-badged under the CD Products and Services outcome (albeit we note that some firms that are not subject to PROD will be caught by the CD requirements).

And the Cross-Cutting rules – act in good faith, avoid causing foreseeable harm, enable and support retail customers to pursue their financial objectives – they sound very TCF to us?

Cut the sarcasm ATEB

Ok, you may have detected a degree of cynicism here and in previous articles, but we cannot help but sense some regulatory rule regurgitation. Most of us conscientious citizens would agree that recycling is good thing, but generally that equates to destroying the previous incarnation with a view to a bright, new, shiny object. CD is not consigning any existing rules to history though, it is adding to them.

In fairness, there is a clear emphasis now on customer outcomes. The webinars stressed this point, and even hinted that an outcomes focus is more important than pure compliance; in this respect they have to be referring to a tick-box approach to compliance, which has never worked.

If on the other hand, you are a follower of the ATEB mantra that ‘compliance will be a by-product of robust business processes’ then you should be in a very good position to address the CD requirements relatively easily.

What do we mean?

If your compliance regime is of a good quality now, with process controls, monitoring programmes, meaningful MI and external auditing, then you will by default be meeting the CD obligations.

You may not, however, be fully evidencing that you do so right now, so you will inevitably have to change some things, for example:

  • Implement a formal, periodic CD review;
  • Assume board level accountability;
  • Nominate a CD Champion;
  • Review MI for relevance;
  • Focus auditing on aspects of the CD.

But we re-emphasise that if you have good PROD compliance now, your charging structure is fair, your documentation is clear and concise, you have vulnerable customer processes and you are objectively audited …… then you are a long way down the line.

What good practices have we picked up from the CD guidance?

We like the focus group suggestion. Many blue moons ago we referred to this as the ‘granny test’. All you need to do is create of diverse group of individuals, say 4 – 6, and ask them to give you honest feedback on the clarity of your documentation, for example disclosure documents or suitability reports. Diverse in this context could mean: a non-advising member of staff, a friend, a friend’s mother, the vicar, the candlestick maker, oh, and a compliance consultant. Ask them for some honest feedback.

Customer surveys and feedback. It’s never good to get negative feedback, right?

Wrong!! It’s very important to get any feedback because if we don’t make mistakes, we can’t learn. (Recommendation: Mathew Syed’s book Black Box Thinking). These days, there are specialist firms that will handle the surveys for you. Never mind CD – this is a good way to improve your business full stop.

Behavioural bias. This is an interesting topic and if you’re committed to providing top notch advisory services, an appreciation of the topic would be a good one to add to your T&C development plans. Syed in his book touches on a related topic, cognitive dissonance, where despite the clear evidence, an individual pursues a path contrary to the evidence, based on what that individual believes to be right. A real world example is where a detective still believes that a person convicted 20 years ago is guilty despite modern forensics proving otherwise – ‘I know he did it’. A more relevant example is a pre-conceived belief that a customer will be best suited by an in-house investment proposition despite the facts telling a different story.

Graphs. The FCA showed a couple of examples in the webinars. Providing visual MI like this is a good way to highlight trends highlight anomalies.

FCA Questions. The finalised guidance lists questions that firms can expect to be asked in their interactions with the FCA – these are a pretty useful barometer of where you need to be.

Access the papers by clicking on the links below …

Finalised Guidance

Policy Statement


Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

There is most certainly some re-hashing of existing rules in the Consumer Duty rules and guidance. There is now though a clear focus on customer outcomes, and more specific requirements for firms, with the FCA emphasising where firms ‘must’ do certain activities; there are 56 instances of the phrase ‘firms must’ in the finalised guidance. And firms will need to re-evaluate their business models. The use of centralised investment propositions (CIPs) will come under scrutiny – are they really the best option for the customer and why are they often the default position – behavioural bias perhaps? And customer reviews – are they needed when a simpler solution may be better suited and more cost effective for the customer. The justification for a recurring income model may well come under pressure and so business owners need to accept this possibility and proactively plan towards what the business may look like in 5 – 10 years.

Action Required By You

Firstly, ensure that your Implementation Plan is in place by the end of October. This is only a plan though, you have until July 2023 to fully embed the Duty. Thereafter, build in periodic ongoing Consumer Duty reviews into your compliance monitoring programme. In your reviews, focus on customer outcomes. Gather feedback from focus groups. Review your management information. And see if you can answer the FCA questions (as listed in the finalised guidance) positively, and backed up by good MI. And be flexible. The business model may need to change.
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About the Author

With a wealth of consultancy experience, we like to think that Huw has aged well, like a fine wine. Considered and practical in his approach, he will help you to demystify the complex world of regulation and provide a sympathetic shoulder to lean on.

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