FCA's 'good outcomes' principle comes with big requirement for evidence

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FCA's 'good outcomes' principle comes with big requirement for evidence
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There is much talk of firms’ boards or equivalent bodies and non-executive directors being appointed as consumer duty champions.

How is this relevant to me, with my three employees and a photocopier, I hear you ask? 

The answer is that if you’re a regulated firm providing products and services to retail clients, it applies to you.

Small firms won’t have the same compliance requirements as big providers.

Underneath the new principle of "acting to deliver good outcomes for retail clients" lies a big requirement for evidence. 

The Financial Conduct Authority wants to be able to see just how you’re achieving that. And it reflects a shift in the way the regulator will supervise firms in future.  

It’s also aligned with the senior managers and certification regime – so the more senior you are, and the closer you are to the decision-making in your firm, the more the FCA will expect of you in delivering, and providing evidence of, good outcomes.

There is an element of proportionality though; small firms won’t have the same compliance requirements as big providers.

But it also means the resource you devote to bringing in new customers should be broadly reflected in how you look after them once they’re in, and how easy it is for them to transfer out.

You may already be assessing, testing, understanding and providing evidence of the outcomes your customers are receiving, but how should you be doing this in future in a way that you can demonstrate to the regulator?

Not only do you have to show where good outcomes are happening, if you’ve discovered that some of your customers are having a sub-optimal experience, you must show you’re working out why, fixing it, and taking steps to stop it happening again.   

There’s a certain amount of flexibility in the sorts of data sources firms will be expected to use. They will depend on factors such as the size of your firm, your client base and the products and services you offer (that ‘proportionality’ word again).

Be prepared for incoming requests from other firms looking for evidence that they’re complying with the new rules.

Happily, the FCA has published in its final guidance a suggested list of the types of information firms may want to collect (and, in many cases, will already be collecting). These can be grouped roughly as follows:

Your own customer data

If you have data from reviews of your client base it may show whether certain types of customers are more likely to buy certain products or services.

Do some tend to pay more or less, or get consistently better or worse outcomes? You can also use complaints data, including trends and root-cause analysis to show understanding of the cause of complaints.  

This might also include reviewing customer files and monitoring calls to check for errors and assess if customers received good outcomes, as well as checking compliance reports. 

Sharing information

Not all the information you collect will come from your own sources – and be aware you may have to share your information with others, if asked.

The guidance suggests that firms "may want to include" feedback from other parties in the distribution chain.

There’s actually an existing rule which still applies that "to support manufacturers, distributors must, upon request, provide relevant information, including, where appropriate, sales information, information on cancellations, and information on the regular reviews of their distribution arrangements".

Therefore, be prepared for incoming requests from other firms looking for evidence that they’re complying with the new rules. 

Customer behaviour and feedback

Research that shows you’ve looked at customer behaviour such as interactions and drop off rates, your use of different communication channels and consumer testing of user interfaces such as websites and apps will be relevant.

Is anything getting in the way of consumer engagement or understanding, for all or some of your target market? 

Your own staff can provide evidence of how well you’re achieving your objectives.

As well as the traditional customer feedback route, the FCA suggests you can use comments and complaints on social media to identify trends and areas for improvement – although equally you can use happy customers to show evidence of where you’re achieving good outcomes. 

External research 

You can also use external research to show how your products and services fit with the outcomes you’re aiming to achieve.

The FCA helpfully suggests its own Financial Lives consumer segmentation survey of 250,000 households – data due soon for 2022.  

If you want, and have the budget for, research more specific to your firm, you could use external consultants, mystery shopping, focus groups, or work with consumer organisations to provide the evidence that you understand your target market. 

Staff 

Your own staff can provide evidence of how well you’re achieving your objectives.

Staff training, including remedial actions and having processes in place to allow staff to feed back honestly on products and services, can all be taken into account.

If that looks like a long list of suggested data sources, bear in mind that while the ultimate objective of all this is to have sufficient information to be able to identify whether you’re delivering good outcomes, there’s an inbuilt flexibility in how you go about it. 

If you want an even more detailed list you can head over to paragraph 11.33 of the finalised guidance.

Alison Gay is senior public affairs consultant at the Lang Cat and a former senior associate at the FCA