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Are you really ready for Consumer Duty? Addressing the FCA’s feedback on implementation plans

Did you make the grade? The Financial Conduct Authority (FCA) recently carried out a review of firms' implementation plans for Consumer Duty. Did you pass? Or do you need to take note — and swift action.

To recap — the new Consumer Duty seeks to ensure that financial institutions operating in the UK act in good faith, avoid harm, and help consumers achieve financial objectives across four key outcomes:

  • Consumer understanding: Customers are equipped with the right information to make properly informed decisions

  • Price and value: Prices for products/services represent fair value

  • Products and services: Customers receive suitable products that meet their objectives

  • Suitable treatment: Consumers receive good treatment in their support interactions

While the FCA found that firms broadly understood the shift to consumer-focused outcomes, they identified gaps in firms' readiness to meet the July 2023 implementation deadline.

There are three main areas where the FCA recommends firms reexamine their plans:

  1. Prioritisation: Firms' proposed starting points were often insufficient or misaligned to areas of greatest risk of poor consumer outcomes

  2. Over-reliance on existing measures: Some firms demonstrated an overconfidence in the adequacy of existing processes

  3. Interactions with other parties: Some firms' plans placed insufficient focus on the need to share information with other parties in the distribution chain

This lack of readiness should ring alarm bells. The number of FCA fines increased by 160% in 2022, as enhanced supervisory technology improved the regulator’s ability to take action against firms of all sizes. 

To guard against the risk of financial penalties, firms should reexamine their plans in light of these improvement areas.

Let’s take each one in turn.


1. Suboptimal prioritisation

The FCA found that firms tended to gravitate, in the first instance, towards the obvious. An example of this might be focusing on one high-risk area for poor consumer outcomes — like marketing communications — and doubling down on efforts to reduce risk there. But what about other functions — like contact centres, say — where the solution may be less obvious, but the risk of poor consumer outcomes no less great?

Having spoken extensively with firms, the rationale for their approach to prioritisation makes sense. Many have been keen to impress upon the FCA that they are taking, effectively, a zero-tolerance approach for risk. In the case of consumer understanding, what this means is that firms would run hundreds of studies per year, leveraging customer lists or online panels, to test every piece of marketing and other customer-facing comms, to filter out high-risk content, and thus ‘de-risk’ communications before issuing them. 

While this may sound like a zero-risk strategy in theory, it might not be so in practice. 

Firms, after all, do not have an infinite supply of customers willing to participate in panel studies (neither, for that matter, do external panel providers, assuming every financial institution in the UK wanted to pursue a similar strategy). How long before either the supply is exhausted, or panellists are called upon once too often, such that survey fatigue sets in, resulting in bogus data?

One could argue, therefore, that prioritising comms testing above all else is a strategy destined to fail over the longer term. Of course, each firm should follow its own legal advice and approach to risk. But, while comms testing may constitute part of a firm’s response to Consumer Duty, ultimately the regulator will want to know how the firm intends to ensure a continuance of good consumer outcomes, even when it has no panel viability.

Firms should look beyond market research methodologies for their starting point. For instance — to evidence outcomes around suitable treatment, organisations should harness technologies for automating quality management across 100% of telephony interactions, thus minimising the risk of consumers receiving unacceptable levels of support. And, to evidence the suitability of products and services, firms should leverage tools such as persistent product-level feedback, and ‘always-on’ feedback on public-facing websites/apps.

Remember, the FCA expects institutions to strive for the standard of a  “reasonably prudent firm”. Plans for eliminating all risk are less than realistic — the regulator will likely be satisfied with a sufficiently robust plan that enables a firm to have a sensible discussion with them about how it plans to minimise risk on an ongoing basis.

2. Inadequate existing processes

This relates to the previous point: firms that have chosen to prioritise comms testing often intend to rely on legacy market research methodologies to do so. But, even in the case of research-centric methodologies, there are modern practices — like video feedback, for example — that can help drive far richer insights.

The inadequacy of existing processes, however, stretches into other use cases.

For instance, having engaged with dozens of firms over the past months, it seems many are looking to augment their existing survey programs by asking questions that align with Consumer Duty outcomes. But does this go far enough? Surveys, after all, have been experiencing dwindling response rates for some time — what does it say about the robustness of a firm’s plans if it is content to hear only from a 15% sample of its customer base?

But already, first-movers are looking to move from sampled insights, to a far broader coverage of consumer experiences.

With Natural Language Understanding (NLU), firms are starting to embrace real-time analysis of emotion and sentiment across every type of text-rich customer record: speech-to-text, chat transcripts, complaints, emails, social media… The greatest advantage this offers is that it enables firms to broaden their signal capture to 100% of customer contacts. And, therefore, to automate outcome testing and vulnerability detection across 100% of contacts, too.

Leading financial institutions have already started to realise meaningful consumer benefits from NLU tools. One major UK bank was able to drive a tremendous cost saving by moving from manual complaints tagging to an NLU-powered, automated process. But it was the technology’s ability to understand the root causes of consumer dissatisfaction that enabled the bank to redesign the journeys and policies that triggered complaints — reducing reportable complaints by 50% in the process.

This highlights the potential of NLU to dramatically improve consumer outcomes. 

The other great advantage is that, while surveys can be effective for driving customer recovery action at the frontline, mining conversations for insights will typically yield far richer information about products and propositions, and so can be more effective for driving action across the middle- and back-office teams responsible for designing them. For firms that view the new Duty as an opportunity to align their entire organisation around the consumer, unstructured data should absolutely be part of the strategy.

3. Neglecting the distribution chain

The FCA’s final observation may seem nuanced, but it is a critical point for mortgage providers who distribute products via brokers, for example. Or insurers who sell through intermediaries; independent financial advisors (IFAs) who leverage discretionary fund managers; or any financial institution that operates in a marketplace setup.

Bluntly, while Firm X may feel it is merely doing the fulfilment behind the scenes, and Firm Y owns the relationship with the consumer, nevertheless it is incumbent on Firm X to ensure it equips Firm Y with adequate information about the underlying product, to ensure good consumer outcomes.

The middle B in these B2B2C relationships is often an afterthought in firms’ customer experience programs. But leaders have started to realise the synergistic benefits of sharing data. And not just product data, but experience data, too.

For example, firms that sell through a network have an opportunity to create a Consumer Duty program that intermediaries can opt into. If the brokers agree to share consumer experience data with the firm, in return they can receive highly valuable, anonymised benchmarking data, to help them understand their performance relative to their peers. Firms might even choose to offer financial incentives for intermediaries who demonstrate high levels of Consumer Duty compliance and persistently good consumer outcomes.

Another important element of Consumer Duty is the employee experience — in other words, how do employees feel about changes they are being asked to make to their ways of working as part of their employer’s Consumer Duty program (be it closing the loop with dissatisfied customers, or simply engaging with consumer feedback in ways they have not before). 

Expanding the scope of a firm’s consumer-focused investments to encompass these overlooked dimensions can be a powerful way of getting more fuel (i.e. data) into the engine of its Consumer Duty program.

Last chance for firms to shore up their plans

We are recommending that our customers reexamine their strategies, particularly regarding the technology needed to embed the substantive requirements in their implementation plans for Consumer Duty. Those that do so will be ahead of the curve in avoiding fines and other punitive measures, and best placed to attract and retain more customers by driving differentiation through high standards for customer experience.



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