The Financial Conduct Authority's Consumer Duty Act will have a far-reaching impact on product manufacturing and distribution, customer communications and servicing in particular. However, there will in reality be very few areas of business that it will not touch in one way or another.
It is therefore going to be vital that firms have the right level of compliance and oversight in place to ensure the regulations are considered across business lines, products and legal entities.
There will need to be a level of consistency in application throughout a business, while also recognising the need for proportionality relating to the size, complexity and risk inherent in different areas.
Compliance with consumer duty will not be a binary choice based on a clear set of requirements, it will only be achieved through the overall culture of the firm being aligned to the high-level principles and focusing on the customer outcomes.
That cultural shift within businesses will need to be supported by the correct governance and controls that can find where there may be an issue, or room for improvement, in certain areas.
So what does this mean in practice for compliance teams, and those responsible for overseeing the activities of the firm?
Increasing the compliance scope
Ultimately, all activities that can have an impact on retail customers are now subject to the consumer duty. There will be few areas within most firms that escape the new rules completely.
Compliance will need to review how all areas are currently overseen and adapt accordingly. Are those areas, such as product manufacturing and distribution, IT and change management, all aligned to the principle of customer outcomes in everything they do?
It is possible that more activities across the business will come under the scope of the regulatory framework, or that activities will need to be overseen with a different focus on the customer.
At the heart of this oversight will be those measures and metrics, some of which will increase in importance. Compliance will need to define and monitor the metrics relating to service-level agreements and customer communication channel usage, which they may have only previously been aware of at the highest level.
Change the mindset
The governance by principle that consumer duty looks to extend will mean that the ways and means of ensuring compliance will need to shift as well. Firms will need to challenge themselves on their existing practices – some activities that are currently accepted may not be delivering the right outcomes for customers when critically assessed.
Compliance will play a vital role in doing this, and their voices will need to be heard within businesses.
A true compliance function, acting as an independent voice within the business, will provide an important perspective.
Compliance will need to challenge existing norms. They will also need to have a perspective on how the various rules will overlap and be open to new ways to overcoming challenges.
Compliance will need to work with the business, forging a culture that encourages innovation to support the customer’s best interests.
Re-imagining processes, the ways and means of customer communication and delivering fair value may challenge traditional methods, but compliance needs to support these conversations.
Understand the landscape
Understanding the big picture will be vital. Delivering good customer outcomes will not be achieved by the introduction of a particular line on a letter, certainly not on its own.
The overall customer journey will need to be viewed as a whole to understand customer interactions and how the firm is supplying good outcomes, products, or service to the customer.
Compliance will need to view things through that lens. They will also need to be clear about the vision and strategy of the firm and ensure that needless barriers are removed for individual processes.
The change roadmap will need to be considered so the true end state is understood, and compliance enable that vision to be achieved.
Deliver true governance and oversight
Underpinning all these changes, firms will need to ensure true governance and oversight throughout all the relevant activities.
The requirements and metrics needed to assess customer objectives will only be useful if the correct structure is in place to govern those activities, highlight where there are issues, and take steps to escalate and address the root cause of the problem.
Forums or sub-committees that look good on paper may not always achieve the right results. Those dealing day-to-day with customers do not always follow directive controls, even where the controls are documented and reviewed regularly. The business needs to ensure that what is in place is appropriate, proportionate and functionable.
Metrics that have been designed are used constructively, to aid the business's assessment of compliance, rather than becoming an end in themselves.
Business leaders need to ensure that the controls implemented are being consistently applied to reduce the risk of errors and should be held accountable for their decisions.
Senior managers will need to ensure they have a detailed understanding of the requirements within consumer duty so they can provide effective oversight, supporting the business and customers to achieve their objectives.
Consumer duty poses a challenge for compliance and oversight, but also an opportunity to create an environment where the business is aligned to customer outcomes in a way that has not previously been possible.
Compliance will be a large part of the relative success of the governance by principle if the opportunity presented is grasped.
Dominic House is a lead consultant at Simplify Consulting
