In Focus: Modern financial planner  

Using tech for consumer duty compliance no longer luxury

Josh Blundell

Josh Blundell

A recent survey suggests financial advisers and wealth management firms may be too complacent about the data and process preparations they need to make for compliance with the new consumer duty rules.

Nearly one in five financial advisers are not aware of the new regulations at all, and more than half (53 per cent) only expect to make small changes, Royal London's "Counting down to the consumer duty" report found.

These firms may not realise the scale of the transformation that is coming. 

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Compliance with the consumer duty rules needs to be in place for new and existing products or services that are open to sale or renewal on July 31 2023. Boards need to have agreed an implementation plan by the end of October 2022. 

Substantial impact

Under the new consumer principle, financial advisers and wealth management firms will “need to act to deliver good outcomes for retail customers”.

They will also need to adhere to three “cross-cutting” rules, which require firms to:

  • act in good faith;
  • avoid causing foreseeable harm; and
  • enable and support retail customers to pursue their financial objectives.

In addition, the FCA says there are key elements of the firm/consumer relationship that are instrumental in helping to drive good outcomes for customers.

These outcomes relate to:

  • products and services;
  • price and value;
  • consumer understanding; and
  • consumer support.

Firms will need to prove compliance with this framework by providing evidence to regulators, senior managers, the board, and other stakeholders.

The challenges in implementation are myriad, but they will be particularly acute for firms who manufacture products.

Firms will want to enhance their own product governance processes, internal structures and, importantly, their product data.

For example, they need to ensure they have a clear and demonstrable target market in place for every product or service they deliver to retail clients, and that they are able to assess whether these products and services are ending up with the defined target market.

These activities and others need to be recorded and the data analysed for ongoing reporting internally and, increasingly, to the regulator. 

In addition, firms will need to collect a wide range of data to ensure compliance with the senior managers and certification regime.

The FCA says the duty imposes expectations across the product lifecycle including design, distribution and delivery of products and services and each senior manager must take responsibility for the role they can play in delivering compliance with it.

The FCA also specifies the board reporting that is required, and expects firms to have a consumer duty champion at board level. All this requires the kind of transparency that only high-quality, timely data can bring. 

Data is vital

Throughout the consumer duty guidance, the FCA specifies the kinds of data and reports it expects to see firms – including wealth managers and advisers – using.

So, these firms will need more and better quality data about their products and activities across the whole of the product lifecycle. 

Managing these information flows manually – with email, spreadsheets and shared drives – will be challenging.

Manual processes also do not provide the electronic audit trail that regulators like to see and which make boards and senior managers able to assess whether the firm is meeting its obligations.