Consumer Duty and fair value: where are you now?
Ebenezer Scrooge is undoubtedly one of the most infamous bankers to ever spring forth from the pages
Ebenezer Scrooge is undoubtedly one of the most infamous bankers to ever spring forth from the pages of a book.
“Hard and sharp as flint, from which no steel had ever struck out generous fire; secret, and self-contained, and solitary as an oyster.”
Charles Dickens, A Christmas Carol, 1843
Although the Christmas Carol story has been adapted many times, its core message about treating people well has endured and now serves as a warning to us all, firms and individuals alike.
Today the focus on how financial services firms treat their customers has never been sharper, with the tenets of Treating Customers Fairly (TCF), a focus on customer-centric culture and the forthcoming extension of the Senior Managers & Certification Regime (SM&CR) to all firms shaping much of the regulatory regime.
However, the industry isn’t there yet – there are still lessons to be learned. Let Scrooge’s three ghosts take you on a journey of compliance past, present and future.
The Ghost of Compliance Past
The Ghost of Compliance Past reveals a bleak picture of an industry still reeling from the impact of the 2008 financial crisis. Poor customer outcomes and widespread mis-selling had been driven by conduct failings. A lack of individual accountability and poor organisational culture, which was more heavily weighted towards commercial objectives without appropriate consideration for customer outcomes, also contributed.
As proof, the ghost brandishes the FCA’s Wealth Management and Private Banking thematic review, showing that 23% of the files reviewed had a high risk of unsuitability and 37% were unclear. The unclear files were unable to demonstrate suitability for a number of reasons, including inadequate know your customer (KYC) information, poor record-keeping or inconsistencies within the file.
The Ghost of Compliance Present
The compliance present looks a little brighter but confidence in the industry is still low, against a backdrop of continuing economic uncertainty and a significant increase in regulatory fines against individuals. The industry is also still dealing with the aftermath of past conduct scandals, including LIBOR rate fixing and the widespread mis-selling of PPI.
The Ghost of Compliance Present shows us that while the FCA’s latest review into the suitability advice found 93.1% of files reviewed were suitable, common failings such as poor record-keeping and the inability to evidence the suitability of recommendations were still prevalent. Disclosure also remains a concern, with only 52.9% providing appropriate disclosures.
Before we leave, the Ghost of Christmas Present reminds us that the moral of the story isn’t just about fixing yesterday’s issues but also preventing future ones, with firms’ actions driven by a positive customer-centric culture. A rosy glow is beginning to appear on the horizon, with forthcoming regulatory changes focusing the industry’s mind on delivering the right customer outcomes, driven by their inherent behaviours, values and other cultural indicators.
The Ghost of Compliance Future
The vision presented by the Ghost of Compliance Future shows us that there is a silver lining beyond all the doom, gloom and poor conduct of the past.
Across the breadth of the industry, financial services staff have a clear understanding of their responsibilities and how their behaviours and omissions impact the customer journey and outcomes they receive. This, combined with SM&CR’s ongoing focus on robust governance and an appropriate culture has seen incidents of regulatory censure decrease and consumer confidence improve.
“I will honour Christmas in my heart,” said Scrooge, “and try to keep it all the year.”
Scrooge managed to change his ways in just one night, but changing the culture of a firm to one where the customer is at heart of every decision can take significantly longer. Driving cultural change requires periodic, evidence-based assessments to ensure a firm is adequately balancing commercial considerations and customer needs. Although there is no such thing as a model financial services culture, firms with clear accountability for delivering positive outcomes at all levels of the business and a proactive approach to identifying and addressing emerging risks are more likely to be aligned to the regulator’s expectations.
We hope you have a wonderful festive period and a happy New Year!