The FCA’s Consumer Duty is live. This duty sets out higher standards of consumer protection for all firms that provide financial services to retail customers. The Consumer Duty requires firms to put the needs of their customers first, and the SMCR ensures that senior managers are accountable for the firm's compliance with the Consumer Duty.
Below are some sample (non-exhaustive) actions SMFs can take to get them closer to compliance with the Consumer Duty.
What are you doing to segment your clients based on different outcomes?
Creating different segments of clients within a target market based on different needs such as wealth, age, mobility, expectations, needs, etc., as products / services have different benefits depending on the clients’ needs and circumstances.
Do you have the data and MI you need to track the outcomes related to each group of clients?
Remember that this isn’t a TCF-style MI exercise. It is about the extent of the process and justifications given to tracking outcomes – FCA will be expecting MI to demonstrate achieving outcomes and meeting the regulatory obligations. Some data points will exist already while others might need mining from client feedback, surveys, research, etc.
What impact has this segmentation work had on your charging models?
Remember the FCA does not expect firms to state there has been no impact on them as a result of the Consumer Duty obligations coming live.
Given the no nil return expectation, all firms will need to produce an assessment, and proof that they are providing fair value.
Remember fair value is not just price, it’s also customer satisfaction, feedback, etc.
Firms need to demonstrate they have reviewed and concluded what they think is fair value, particularly in relation to target markets and segmentation within that target market.
There will be a new tranche of information/data coming from the manufacturers as they hopefully met the 30 April deadline. Distributors must take that information/data into account.
What is the proportion of clients for whom ongoing service charges genuinely represent fair value?
This is going to be a prove it/show me test under which firms will need to have considered what they are providing and justify what they are doing.
What changes will you make to remuneration models to shift to an outcomes-based focus?
Most remuneration models will need shifting away from P&L to better align with the Duty. This also means that staff appraisals, KPIs, bonuses will also need realignment.
There’s a read across here from conduct risk where lots of firms created red flag style models to evidence they were considering conduct as part of remuneration.
To what extent do you need to change employee behaviours - how are you doing that, how will you track progress, and how do you know you have succeeded?
Helpfully, FCA is clear this is a longer-term change challenge. In the short-term, firms need to be getting staff feedback, and making sure staff know that they can safely raise anything they are concerned about (lots of non-financial misconduct / whistleblowing / culture points can be recycled here).
What assurance do you need regarding discharging of your personal responsibility under SMCR?
The FCA has made it clear from the outset that the Board, CEO and Champion are responsible for implementation. That puts pressure on your annual Board attestations and getting these right means a big role for compliance as the independent challenge function.
SMFs need to be aware they are likely to be asked personally how they have engaged with the Duty and what they are doing in their areas of responsibility to drive change and compliance.
Next Steps
You should start preparing your own approach to these questions. Feel free to browse some of our relevant solutions as well:
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