Three ways to tackle ongoing consumer duty compliance

The regulator’s direction of travel is clear to see, with the FCA showing its intent by reinforcing the consumer duty outcomes mandate across a range of areas, such as:

• The pressure on investment platforms to demonstrate the value being delivered to customers in relation to ongoing advice fees and cash management.
• The outcomes from the later-life mortgage review that is placing a greater emphasis on customer vulnerability and suitability.
• The challenge to centralised investment propositions in relation to how it is used, charges, and target market.

Over recent months, advisory firms have been documenting changes and evidencing how actions taken are supporting positive consumer outcomes.

But with attention now turning to ongoing compliance, advisers are faced with a whole new set of challenges. 

Moving forward, advisers will have to continually monitor different customer groups and adapt products, services, and communications where potential risks are identified.

But have firms got the right solutions and processes in place to collate and record this information? With a recent research paper by Model Office showing that only 25 per cent of firms feel prepared for the May 2024 consumer duty annual reporting requirements, perhaps not. 

To support any advisers who are feeling overwhelmed by their ongoing responsibilities, we explore some of the ways that firms are looking to manage this process. 

Strengthening MI through outcome testing

Having up-to-date management information on customer interactions, complaints, and satisfaction levels has always been crucial to good financial advice. 

Under consumer duty, firms must also collect relevant data to assess the outcomes experienced by their customers, including gathering data on customer understanding, feedback, suitability checks and any other relevant metrics. 

The regulator does not expect all firms to be perfect, but they do expect an inward-looking challenge process driven by key data.

We are now increasingly seeing advisers using outcome testing as an integrated part of their MI framework; initially calibrating the firm against a new set of outcomes, and on an ongoing basis to monitor that these outcomes are being achieved. 

These outcomes will need to cover various elements such as customer types, products/services available, and the wider client journey. Once captured, the firm can start to consider what further improvements can be made to the MI framework coverage. 

Articulating outcomes, as opposed to processes, demands thought. However, it can be a critical means of developing effective consumer duty MI.

Seeking external assurance

Firms must now review their compliance with the consumer duty on an annual basis – this includes a formal annual board assessment (where this is relevant given proportionality). 

More than ever business owners are considering the role of external assurance around compliance, and how it can dovetail with internal resources.

Advisers we work with are finding external assurance services particularly valuable for compliance purposes given the complexity and judgement required, as well as how customer needs and regulatory expectations will evolve over time.

Take-up is particularly prominent among smaller firms, where there is often a skills gap, and the option of employing a full-time individual is prohibitively expensive.

Maximising RegTech

The FCA is quickly moving to a data-driven model for identifying trends and pinpointing areas of concern. The expectation is that adviser firms should be adopting a similar approach.  

The regulator does not expect all firms to be perfect, but they do expect an inward-looking challenge process driven by key data – one that follows an auditable work stream of changes and validation.  

The need for evidence has become critical, which is why a lot of firms say they are likely to adopt regulatory technology to help them achieve this.  

Industry solutions such as Model Office, in conjunction with expert compliance oversight, enables firms to identify, segment and rank data against the four consumer duty outcomes, with provision to validate and evidence adherence.

As we move through the coming months, we can expect these kinds of solutions to become increasingly popular as more firms look to evidence compliant practice and find ways to meet the regulatory requirements more easily. 

So, what can firms expect in 2024 regarding consumer duty? 

More and more data-driven challenges from the regulator, for sure.

The focal point for demonstrating compliance with the consumer duty will continue to be self-challenge and evidence, which means that having the mechanisms in place to collect, measure and act on data will be key.

John Higginbottom is head of regulatory propositions at Bankhall