TCC recently hosted a multi-sector Consumer Duty forum to review ongoing industry risks and challenges whilst providing the opportunity to benchmark progress against financial service peers. In this post-forum evaluation, we consider the five key themes from the day and examine them in greater detail.

The five discussion themes

1.Culture

Culture remains one of the key challenges in delivering an initial and ongoing framework for appropriate customer outcomes. Firms should consider the implications of Senior Management Arrangements Systems & Controls (SYSC), and Senior Managers and Certification Regime (SMCR) risks associated with the Consumer Duty; these can be collective but also individual.

Key takeaways:

• Previous TCC forums indicated a lack of board involvement and/or clearly defined corporate governance approach
• There is too simplistic an approach to comparing competitors in ‘safe harbour’ gap analysis
• There is a mixed perception of board and senior management function (SMF) interest in the project to date, which has led to discussion about whether boards fully understand SYSC implications and/or individual confidence in discharging SMCR duties
• A non-executive director (NED) is also the Customer Duty champion in some firms, and it was debated whether there are conflicts in the same individual holding both roles and if board members are sufficiently educated on Consumer Duty to affect the champion role

Comments:

• “Cultural difficulties in getting teams/group entities to work together.”
• “Certain conflicts of interest are not being taken into account.”
• “We are changing the language we use internally – from one of ‘requirements to comply with the Consumer Duty’ to one of ‘customer outcomes.’”
•  “The second line needs to tell the board what the risks are.”

2. Confidence levels

It is incumbent that the board do what is necessary regardless of how difficult or uncomfortable it is. Individually and collectively, they need to demonstrate they are discharging their duties. If that means revisiting or challenging the analysis to hand, then that is what is required.

The chairman and chair of the board/committees are responsible for ensuring the relevant and timely review of information with appropriate quorum and Management Information (MI). The risk framework should be able to identify consistent and relevant MI, including key performance indicators (KPI) and key risk indicators (KRI). There should be clear evidence of actions and mandatory empowerment and escalation levels.

There is a risk that Consumer Duty annual board reports will only present positive messages and not work in progress/required actions.

Key takeaways:

• Firms are now firmly focused on annual assessment content
• Access and involvement of Consumer Duty Champions appeared inconsistent in approach, interest, and value

Comments:

• “We in the second line felt like we had to drive it because no one else seemed to do it right.”
• “It sometimes felt like we were wishing to surface risks and issues with the board but there is a culture of the board wanting to receive only positive messages.”
•  “Can feel some indifference to Consumer Duty, for example, staff and senior leadership ‘glazing over’ when Consumer Duty is on the agenda or raised as an issue.”
• “Not overly confident that some of those on the board and with SMF status really understand the risks and how they are discharging their duties.”

3. Scale

The forum was a mixture of medium to large-size firms. With larger firms having access to wider resources, medium firms have access to a core team and some wider firm resources, and smaller firms often allocate to the second line.

Key takeaways

• The forum discussed the relevance of scale in ongoing monitoring including static and thematic testing and the difficulty in devising relevant scope and methodology for testing
•  There was a degree of risk attached to first-line quality assurance (QA) and limitations on the volumes being tested without relevant investment in IT
• Proportionality does not automatically equate to ‘smaller size meaning less work’, for exampleanalysis, MI, governance and ongoing effort
• Proportionality (under SYSC) should reflect size and complexity; firms must be able to demonstrate (not just articulate) how they deliver appropriate consumer outcomes
• Use of technology massively increases the ability to demonstrate the integrity of monitoring by reducing manual resource reliance

Comments

• “We are only a small firm, and it was felt that we didn’t need to over engineer it like a large firm.”
• “Even though I had access to resources, there was difficulty in obtaining consistency in approach, language and outputs.”
•  “I ended up doing a lot of it myself – just to tidy up.”
•  “A lot seemed to end up with the second line – which makes me nervous about marking my own homework.”
• “Testing is limited by the amount of time it takes to listen to a call or check a file.”
• “QA can be like finding a needle in a haystack.”

4. Annual assessment

There were several discussions about annual assessment content and differing levels of confidence in the current integrity of MI, with some firms wondering whether it allowed for sufficient, underlying narrative and/or root cause.

Key takeaways:

•  First line QA was raised, and the frustration of MI being distorted by less valuable (non-material) information, for example, time to answer the phone and establish rapport rather than testing outcomes.
• Many of the firms are slowly moving the dial from MI on complaints numbers and the assumption that low complaint numbers equal good customer outcomes, to other indicators with supporting characteristics.
• The second line of defence (2LoD) in one firm is reporting to the board on the positive impact the second line is having on customer outcomes and producing good supervision and oversight outcomes
• The assessment is an opportunity to ‘tell a story’ – where we were, what we did, where we are and what we still need to do
• MI should be quantitative and qualitative, with clear characteristics which drive the residual risk and ideally with a supporting narrative
• MI must be supported by a risk model which allows consistent and accurate risk assessment
• QA should focus on material outcomes rather than non-material scores which distort the MI lens
• MI should clearly drive actions

Comments

• “Still struggling with MI that tells a story.”
• “We are where we are and there is no appetite to revisit the approach.”

5. Specifics

Ongoing service charges

• There were several firms affected by the FCA review of ongoing service charges
• The forum discussed their current challenges including whether to charge for appointments missed by the client and for how long
• Some firms considered that there would be operational challenges in ensuring advisers updated systems
• Some firms considered there would be oversight challenges in monitoring the integrity and behaviour risks of system inputs

Manufacturer/lender vs distributor

• Some firms would like to see more clarity on the distinction between co-manufacturers and outsourcing partners
• The forum discussed the challenges in obtaining relevant MI which would allow them to measure consumer outcomes including product governance, product key information which might help target more accurately, and product performance for after-sales care

Discretionary Commission Arrangements

• The implications of Discretionary Commission Arrangements in the motor sector provided that there should be more focus on agreeing to the role, responsibility and mutual understanding/agreement of the customer journey including commissions
• The forum discussed the value of manufacturers testing consumer understanding of outcomes as part of their design, test and launch process
• Firms should continue to press manufacturers for as much information as possible
• Firms should pursue the level of consumer testing undertaken by manufacturers as part of the product handover and determine how this affects distribution and post-sales care
• Manufacturer cooperation should be considered as part of product governance including panel choice

Performance and closed books

• Firms would like to see more clarity on whether obligations are met for closed products by writing and informing customers of possible poor outcomes, by maintaining the product/the benefits of changing products, and if obligations are met if reasonable endeavours have been made in respect of customers who have ‘gone away’
  Motor
• The relevance of emerging themes in the motor industry was discussed including gap insurance, Discretionary Commission Arrangements (DCA) and inconsistency in write-off valuations as evidence the FCA is interested in demonstrating ongoing value through performance
• Firms are still sometimes measuring performance by commercial value only rather than value to the customer
• In a previous forum one firm suggested “it was the customer’s fault if he keeps a product that is no longer right for them”
• It is the responsibility of firms to ensure that reasonable efforts are made (taking into account information readily available to them) to monitor whether products remain suitable for consumers and to act appropriately where this is not the case

External validation

Given the essential criteria and high stakes involved, maintaining Consumer Duty compliance poses a significant challenge for regulated firms, with many demands and hurdles to continually consider on a rolling basis.

And that’s where TCC’s team of seasoned regulators and skilled consultants can help. We have the expertise to thoroughly analyse your firm and design a tailored compliance framework that suits your needs.

Our knowledgeable experts can guide you in integrating Consumer Duty principles throughout your business operations – from initial product development to post-sales support – ensuring a customer-centric approach.

Fulfilling your Consumer Duty responsibilities is an ongoing journey, our guidance aims to safeguard your compliance for the long haul. Get in touch to learn more.