It is perhaps understandable that in-house compliance experts and external compliance consultants see the new consumer duty requirements as Christmas come early.
Just reading the hundreds of pages of the Financial Conduct Authority feedback statement PS22/9, the final rules and the accompanying finalised guidance FG 22/5 will have justified some large fees or a salary increase.
All regulated firms had to prepare a plan by September 30 and have until the end of July 2023 (a year later in the case of legacy products) to implement that plan and prepare a report that assesses whether the firm is delivering good outcomes for its customers.
This report should have evidence to support its findings, including the results of any monitoring and an “overview of the actions taken to address any risks or issues”.
There is a risk that this is seen simply as a compliance tick-box exercise – but this misses the point completely.
In its recent letter to CEO’s of all advisory firms, the FCA was quite explicit: “We expect firms to foster healthy cultures which prevent harm to consumers and markets. For many firms, this will require a significant shift in culture and behaviour, where they consistently focus on customer outcomes… .”
This focus on culture should have come as no surprise, as the chief executive of the FCA, Nikhil Rathi, had emphasised it in a widely reported speech in November when he said: “We introduced a phased deadline to help firms embed what is undoubtedly a major cultural and operational shift.”
But what steps do firms need to take to ensure the all important cultural aspects are addressed?
Naming and shaming
By way of example, examination of the FCA complaints data, which is published half yearly, shows that many firms regularly appear.
Complaint numbers and the handling of complaints are only one small indicator of cultural issues, but it seems obvious that any firm appearing on this register should undertake some root cause analysis and take remedial action with the aim of reducing numbers and ultimately disappearing from the FCA 'name and shame' list.
Section 11.33 of FG22/5 gives a very useful list of the types of information firms may want to collect to help provide evidence for the purposes of their annual report.
Ideally, many of those sources of information are best provided through external performance measurement. Obvious examples are:
- Customer feedback
- External sources of data about consumer outcomes
- Testing customer experience
- Tools to allow employees to give feedback openly and honestly
- Feedback from other parties in the distribution chain
These external insights can be supplemented by some internal measurement and reviews such as:
- Business persistence data analysis
- Training and competence records
- File reviews
- Complaints data
Clearly, internal or external risk and compliance specialists have a role to play in policing the provision of evidence and supporting data.
The FCA expectations for small and medium-sized firms are likely to be explained in the FCA’s events being held across the country from the end of February 2023.
