Firms need to consider if outsourcing elements of their business has any impact on their duties under the consumer duty, the Financial Conduct Authority has said.
Speaking to Ozge Ibrahim on the latest Inside FCA podcast, the regulator’s head of competition policy, Ed Smith, outlined what the FCA expects of firms in relation to outcomes monitoring.
The consumer duty is fast approaching, with firms expected to have integrated the regulation into their way of work by the deadline of July 31.
The consumer duty requires firms to assess, test, understand and evidence the outcomes their customers are receiving.
In relation to how the monitoring rules apply where a firm outsources some of its services, Smith said that in general the firm doing the outsourcing will remain responsible for compliance.
“First of all, when outsourcing services consider the duty and whether or not that act of outsourcing in and of itself does create the potential for impacting on customer outcomes,” Smith said.
“So, the processing itself of outsourcing should be thought of through the consumer duty lens,” he added.
Firms will need to have arrangements in place with outsourcers to capture any data they need to demonstrate good outcomes.
They will also need to monitor this to ensure the third-party is collecting the data.
Where the third-party firm is also an authorised firm carrying out a regulated activity, both firms will need to demonstrate good outcomes.
Elsewhere, Smith explained that the FCA wants to see firms “harness the benefits” of the data and technology that they have to improve their services and understand the outcomes they achieve for their customers.
The rationale behind outcome monitoring is to allow firms to monitor their compliance with the duty and to allow them to tackle any potential breaches at an early stage, Smith explained.
“Without the information or the evidence, it's not really possible for firms to know that they’re meeting the requirements under the duty,” Smith said.
He added this is why firms should have a strategy in place to ensure they have the data they need.
“As part of that strategy, we expect firms to identify any risks that are there, to good outcomes for customers and spot where customers are getting poor outcomes and really understand and drill down into the root causes of those poor outcomes,” he explained.
In addition to this, Smith said firms need to be able to demonstrate to the FCA how they have identified and addressed issues leading to poor outcomes.
“For example, if they're adapting or amending their product design, or changing their charges, or using communications to prompt consumer behaviour, the evidence that those changes are,” Smith said.
Identifying risks
When it comes to identifying issues and risks, Smith noted the FCA expects firms to “drill down into the root cause of problems”.
“When they see evidence in the data of potential poor outcomes, they're likely to have to do some more research into that,” he explained.
