Preparing For the Consumer Duty Principle

The FCA’s Consumer Duty mandate is looming large – it’s less than six months until its proposed implementation yet many financial services companies remain ill-prepared. This has to be a concern, given the significant – but not insurmountable – changes that are required to adhere to the new expectations.

No Time Like the Present

One of the biggest challenges with the arrival of any mandate is answering the question ‘where to begin’. The Consumer Duty is no different. Arguably it’s even more of a potential headache given some compliance aspects within it could be seen as ‘soft’ rather than ‘hard’ measurement – the need to demonstrate a ‘positive outcome’ from customer interactions being foremost in this regard.

So then, where do you begin?|

Getting Started With Consumer Duty Compliance: Unify the Stakeholders

Firstly, it’s key to establish everyone within the organisation who needs to play a role in delivering against the Duty. Compliance and risk may historically have sat in the office of the CFO alongside dedicated C&R teams, but with the new mandate involving the customer directly, teams responsible for their journey – and the experience throughout it – must be at the centre.

Achieving this may require more direct engagement between risk and operational teams and the marketing and customer experience parts of the business. If the latter are responsible for delivering engagements that drive a ‘positive outcome’, then the former need to have the tools and processes in place to capture this for compliance purposes. Speaking of which…

The ‘Positive Outcome’

Defining what this means is perhaps the most opaque element of the Consumer Duty coming into force. Granted, there may eventually be a more universal measurement model in place, but for now this is down to individual financial services organisations to define. 

So, how do you specify what makes it ‘positive’? If an interaction increases the knowledge held on the customer, then it inherently builds a better picture of them, and thus deepens the understanding of what is ‘right’ in terms of offers and support. 

Of course, a simple post-engagement questionnaire can be a simple auditable solution – but does it necessarily increase understanding, or does it just tick a compliance box? Plus, what if the response comes back negative? Such risk demonstrates why a more sophisticated, data-led model is essential.

Data Capture at the Core

The role of customer data – and how it is used – has to be reconsidered as a consequence of the demands the Consumer Duty is placing on every financial services company. The expectations on total clarity of information, ease of access to it, plus an open communications and support set-up may be a need for more infrastructure and data-driven processes, but the insight they bring must be integrated throughout operations.

There must be a single version of the customer – one which, critically, has to be consistent across every platform. Siloes simply can’t exist if adherence to the Duty is to be achieved. As such, a full understanding of where the customer engages with you, and where you collect this data is a pivotal starting point.

Extending Legitimate Interest 

Banks and insurers are expected to use their first-hand knowledge of the customer to build an appropriate profile against which to act responsibly. But it can’t be ignored that there will be missing information that sits outside the walls of the financial services operation. When this happens, there is an increased need to establish where legitimate interest demands sourcing missing information from third parties and partners. 

In financial services industries, it can be expected that the Duty will have ramifications on Open Banking – for a bank to offer a ‘positive outcome’, it needs to have an understanding of where, for example, a customer may hold other loans or a mortgage when considering their status to agree to a new financial product.

Ask Difficult Questions

The heart of the Consumer Duty is encouraging those at the top of the financial services business to ask themselves “are we capturing the right data to allow us to put customers’ needs first?”. And the answer to this might be one which they don’t want to hear – because it is highly likely to be “no”. 

This doesn’t just apply to legacy banks, as might be the immediate presumption. Yes, neo-banks are essentially digital- and data-first outfits, but that doesn’t intrinsically mean that the data being captured is either correct or complete. They’ve got a march on collecting the data, but they’ve not cracked the code entirely.

The demands of the Consumer Duty aren’t fully defined – it’s hard to argue otherwise. But that doesn’t mean that financial services companies should wait until they are before acting. If anything, getting a head-start becomes even more business critical. 

For more information on the UK’s Consumer Duty, check out our recent blog, “The UK’s Consumer Duty Demonstrates That a Customer-first Mindset Should Be Innate, Not Enforced.”