Consumer Duty plans require faster rethink of strategies
Following the Financial Conduct Authority’s (FCA) announcement of a new Consumer Duty, they have confirmed that they require board approval of implementation plans by 31 October 2022, earlier than expected. As a result, firms, and their boards have just weeks to plan the biggest transformation of their business in a decade.
Across regulated financial services firms, product design, pricing, customer experience and complaint handling teams now face a hard deadline to finalise major business transformation plans. As a result, the race is on to develop and review plans, pressure-test them for gaps, and prepare for board and regulatory scrutiny. And while the regulation has been in the works for more than a year, a recent small poll of operational risk leaders revealed that 32 per cent felt that they were not as ready as they needed to be.
The Consumer Duty requirement will drive better outcomes
The new regulation spans an overarching principle, four broad customer outcomes and extensive rules and guidance, all designed to create a culture shift in firms and a step-change in consumer protection. The Consumer Duty regulation provides both a challenge and a business opportunity – to move beyond tick-box compliance processes to putting customers at the heart of their business.
Getting ready for board approval
For organisations that are behind on planning, the tight deadline will encourage accelerated transformation. These firms will need to align their desired future state for customer-centricity with target outcomes. This will require an understanding of how customers think about and experience their products and services. Teams will also need to identify the gaps between their current and future state if they are to make critical process, system and operational changes.
Since people serve people, financial services firms will also need to implement new service policies and staff behaviours. Finally, firms will need to demonstrate proper governance, management processes and analytics to regulators.
We have set out four key areas firms should consider when designing their implementation plans for board approval:
- Provide program assurance: Teams must apply best practices and perform regular health checks to ensure programmes pass regulatory muster. Assurance teams will look both deep and wide, drilling down on processes within specific programs whilst assessing how they work together to support consumers as they navigate financial services.
- Assess culture for customer-centricity: Both the board and FCA will be asking companies probing questions to understand how their organisational cultures drive business change and support the four outcomes of communications, products and services, price and value, and customer service. Teams can use the FCA supervisory framework to show how they provide tangible evidence of consumer benefit.
- Review end-to-end operations: It’s likely that most firms will need to significantly change operational and technology processes to support customer-centricity. That may mean redefining customer relationship management and marketing practices or clarifying communications and pricing, amongst other improvements. Since firms are busy evolving their core systems, data programs and customer-facing processes, transformation teams will need to work closely to avoid unintended consequences.
- Get ready for board review: Boards will take on new obligations with Consumer Duty. In addition to signing off on plans, the board will appoint a champion to ensure that Consumer Duty obligations are considered in evolving strategies and plans. The board is also responsible for ensuring proper governance and reviewing outcomes annually. As a result, they’ll be looking for plans that are proportionate, operationally robust and can withstand regulatory challenge.
Preparing for what’s next
These four steps are just the beginning. After securing board approval, UK organisations have until the end of July 2023 to ensure existing products and services comply with Consumer Duty obligations, with one more year for discontinued products.
Most firms will need to implement changes immediately after securing board approval, so that they can begin shifting their culture, testing new processes and making changes required before rules come into effect. Preparing for Consumer Duty is a significant change management initiative, and teams across the business will need to develop new ways to put customers first.
The race to becoming customer-centric is speeding up. How will you meet this challenge?