How can firms manage their ongoing Consumer Duty obligations?

Outcomes Monitoring and Testing

Consumer Duty was never intended to be a “once and done” exercise by the Regulator. Indeed, from the start of our communications and guidance in and around Consumer Duty, we focused on informing firms under its scope that the real impact of Consumer Duty would begin from 31^st July last year, when firms were expected to officially make changes to achieve good consumer outcomes.

Recent communications from the Financial Conduct Authority (FCA) seem to have confirmed that and on 1^st November 2023, Nisha Arora, Director of Cross Cutting Policy and Strategy at the FCA delivered a speech which touched on the FCA’s concerns that firms are not quite meeting the next phase of Consumer Duty appropriately. The message was clear – firms must not be complacent after meeting the 31^st July deadline for implementation and must essentially continue to work on improving consumer outcomes, correcting issues as and when they are identified.

In summary, the speech elaborated on the need for firms to:

• Continue deploying a “lessons learned” and improvement approach consistently;
• Focus on the Consumer Duty review of its closed products and services by the 31^st July 2024 implementation deadline;
• Be aware of the FCA’s prioritised focus on Consumer Duty and its commitment to reaching out to firms for outcomes evidence;
• Bear in mind that the regulator is willing to share good practice to support the industry.

The expectation is now clear that firms must continue to identify any gaps or weaknesses on an ongoing basis by assessing, testing, understanding and evidencing the outcomes their customers are receiving…. and remediating where it’s needed. So, how can firms manage this?

We are frequently working with our clients to help implement an appropriate Outcomes Testing Programme (‘OTP’), which can be used in the lead up to the completion of an annual Consumer Duty review that the FCA expects firms to conduct; this article will look at what that involves and some top tips as to how firms can get started.

What is an Outcomes Testing Programme (OTP)?

An OTP provides an effective framework to base the methodology for monitoring and testing outcomes for each activity in a firm. Essentially, the purpose of the programme is to continue meeting Consumer Duty obligations after the FCA’s implementation deadline of the 31^st July 2023. It enables firms to cultivate the right environment to harness control and process improvement and secondly, to test the changes and monitor improvement.

It will include the implementation of techniques, frequency of monitoring and testing, and reporting processes which will:

• Support with the control design of the outcomes monitoring and testing framework for the Firm and its key third parties (where relevant);
• Provide an objective review of the methods used by the Firm to detect and measure risks under the scope of Consumer Duty and to drive correcting actions;
• Map the Firm’s end-to-end process for assessing outcomes at every stage of the customer’s journey and usage of the Firm’s product and services;
• Consider any systems, tools and processes used in the delivery of Consumer Duty outcomes;
• Embed an appropriate risk-rated methodology for assessing the effectiveness of testing outcomes;
• Assess employee and senior management ownership and oversight of the outcomes monitoring and testing process;
• Analyse the root cause of identified poor consumer outcomes through processes and data management
• Review data sources used by the Firm to obtain an understanding of consumer feedback of their products and services e.g. social media, customer surveys, mystery shopping, etc;
• Review the Firm’s Management Information (i.e. KPI and KRI parameters) to review its appropriateness for reporting the progress of outcomes improvement;
• Support with the production of any committee reports to summarise the evolvement and progress with outcomes testing;
• Help to drive a cultural shift across the Firm to establish the importance of correcting deficiencies that cause consumer harm.

Firms must ensure their Consumer Duty framework demonstrates alignment with these considerations to evidence adequate outcomes monitoring and testing practices.

How can firms get started?

To get started on outcomes testing, firms need to consider four main points:

1. What's it going to look like? Firms should construct the foundations and structure for monitoring and testing outcomes. This will require an effective policy, process and testing schedule to evidence channel its rectification of poor consumer outcomes.
2. How and when will it happen? Firms should have acted immediately after the 31^st July 2023 implementation date onwards. They must be transparent about the poor consumer actions which require immediate attention by the business before these risks crystallise and induce consumer harm. A good starting point would be for firms to review their Consumer Duty Implementation Plan outputs. What corrective solutions could the Firm develop?
3. Who needs to be involved? The key with outcomes testing is for collaboration between the first and second line of defence to ensure that ongoing monitoring occurs across the business, and effectively.

Where firms identify gaps that still need to be fixed, they should focus on resolving them quickly and then testing these corrective actions to ensure that they have actually resulted in better outcomes for consumers.

As with everything else in the compliance world, success can often only be demonstrated through the evidence you are able to produce, so our advice is monitor, assess, analyse, record and retain. Firms must ensure that they use Management Information as a fundamental tool to inform about the testing process, to monitor the effectiveness of the controls and for reporting to Committees and Board.

How we can help

Here at Cosegic, we’ve helped our clients to implement the new Consumer Duty and have a full set of document templates that can help firms to meet requirements and deliver good outcomes for customers.

We have developed an Outcomes Testing Policy to help firms to assess their adherence to Consumer Duty and explore areas of improvement with an appropriate methodology. The Policy is designed to provide a framework for firms to help establish the most effective approach for every finance sector and business model across the financial services industry.

If you have already established testing programmes, we can help you to review them. We can provide support and valuable insights to help you make improvements to align with best practice and regulatory expectations.

If you have any questions or require support with Consumer Duty, please get in contact with us.