Consumer Duty and the FCA’s Expectations of Senior Management

Final proposals from the FCA regarding Consumer Duty are expected by the end of July 2022.  This will introduce the requirement for firms to consider the impact of the products and services they sell on consumers both pre-sale and post-sale. The FCA’s intention is that it will result in a higher and more consistent standard of customer care.

Selling the right products and services to consumers and providing them with suitable and accessible customer service might seem very obvious, but by launching the Consumer Duty, the FCA has flagged its concerns that many firms are not doing this and has decided that steps are needed to fix it. This means another new obligation for which the buck stops with senior managers.

What does the Consumer Duty mean for senior managers?

There is a clear link between the Senior Managers and Certification Regime (SMCR) and the upcoming Consumer Duty.  The SMCR sets clear expectations in terms of senior management’s responsibility for compliance with the requirements and standards of the regulatory regime, while the Consumer Duty raises this standard for them and indeed, for all staff.  The FCA has specifically said that it expects firms to step up and put consumers at the heart of their business and they will be holding senior managers accountable if they do not. While SMCR does not yet apply to Payment Institutions or E-Money Institutions, the Consumer Duty will, and the FCA will also expect those in senior management positions at such firms to be accountable accordingly.

Therefore, as a senior manager, how can you assess whether your firm is likely to meet Consumer Duty requirements? Now is the time to consider the following:

• Does my firm treat customers as I would like to be treated myself?

• Does my firm take customer vulnerabilities into account when considering the impact of products and services on our target market?

• Would I recommend my firm’s products and services to my family and friends?; and

• Do customers get the outcomes from our products and services that I would expect to get myself?

The answer to all of these questions might be “yes, of course”, but how can you demonstrate and evidence this to the Regulator? We have put together the following guidance around some of the key areas you could consider when assessing whether you are taking “reasonable steps” to meet the FCA’s Consumer Duty requirements.

1. Reviewing products and services

Senior management will be expected to ensure that the likely outcomes customers will receive from the products and services sold are assessed and documented.  This should not be a one-off exercise, it should take place throughout the full lifecycle - from setting the strategy, to designing individual products and services and finally, testing and reviewing the performance of these products and services on an ongoing basis. 

The focus should not just be about whether the products and services are achieving revenue targets for the firm, but whether customers are receiving good outcomes from them. Regular independent thematic reviews focussing on the key areas of interest for the FCA can give senior management comfort that the firm is operating in line with the FCA’s expectations and also give firms the opportunity to address issues before they get out of hand.

2. Pricing

The FCA wants to see that the price of products and services represent fair value for customers and as such will expect that price/value assessments are carried out.  Even “free” products and services may need a value assessment where firms obtain some other value from their provision, for example, the use of customer data. This does not mean that the FCA will be clamping down on competition, setting price caps, or removing the flexibility that firms have to offer an enhanced level of service for a higher fee. However, it will expect that senior management document and evidence that they are confident that their products and services are delivering fair value for customers and are being regularly assessed. 

3. Communications

Customer communications must be clear and transparent and fully disclose all costs and fees and particular attention should be paid to customer feedback which might indicate where this is not the case. For example, when customers complain that they did not fully understand the fees applicable to the products and services they bought, or that they are not happy with the level of fees charged.  Complaints data and the outputs of file reviews, mystery shopping or call listening can provide a rich source of information that senior management can use to inform them of the quality of customer communications and whether changes should be made.

4. Customer Service/Support

Providing customers with good levels of service both pre and post-sale is a key requirement of the Consumer Duty. Senior management should commission regular reviews of the level of service provided to customers through complaint analysis and call monitoring.  The importance of providing appropriate and accessible customer support should be emphasised and not just focus on closing the deal or generating revenue.

5. Consistency of approach

Senior management should assess whether there are any areas of the business where they are not quite so mature in their thinking around customer harm, conduct and culture and are not providing consistent service to customers.  These areas may need additional support such as financial resources to increase their post-sale team resources or additional customer service training from central teams or external consultants.

6. Management information (MI)

Appropriate MI is key to evidencing that the delivery of customer outcomes is being assessed and monitored and that senior management understand how well these outcomes are being delivered.  An assessment of the MI that is currently produced should be undertaken to see whether it is fit for purpose and supports senior management in evidencing that they are taking “reasonable steps” to meet the requirements of the Consumer Duty. 

How this MI is used is also crucial, including ensuring that it is discussed at a senior level within the business and that sufficient time is allocated to customer issues at Board or Executive Committee meetings. Other members of the senior management team should be fully engaged in discussions.  Root cause analysis should be carried out on issues identified and these outputs used by senior management to initiate positive changes to products and services for the benefit of their customers.

7. Responsibility

Specific responsibility for overseeing adherence to the Consumer Duty should be allocated to a senior manager and documented in their Statement of Responsibilities, which will reinforce the firm’s commitment to ensuring that customer’s interests are at the heart of its business.  This individual should be given the opportunity to provide regular updates to the Board and Executive team and the agendas and terms of reference should reflect this.

8. Training

Similar to the FCA’s expectations in relation to the Conduct Rules, initial and refresher training on the Consumer Duty should be delivered to all staff on a regular basis.  Senior management support for this initiative will ensure that it receives the right level of attention throughout the business and a consistent message is delivered to all staff.

9. Taking action where customers are not receiving good outcomes

The FCA expects firms to identify issues that cause harm to customers, to learn and take action from them, such as stop the sale of products that are not performing as expected or have been the subject of customer complaints. 

In conclusion…

The FCA expects to confirm the final Consumer Duty rules by the end of July 2022 and firms have until April 2023 to implement it.  Although the implementation deadline appears to be a long way away, making changes to ensure you can evidence good customer outcomes may take some time and you should start now. The Consumer Duty is an opportunity for firms and its senior management to assess whether its products and services are delivering good customer outcomes and consider how they can enhance customer value.  We can help you to develop your plan or identify the key areas that you need to focus on. Please get in touch with us as we would be delighted to help.