3. Surveys and regulatory scrutiny
The proliferation of consumer duty surveys, particularly those focusing on implementation outcomes and vulnerable customers, has added to the industry's regulatory burden.
These extensive surveys, often rushed, expose firms to regulatory risk and create anxiety about increased scrutiny.
While these surveys aim to guide firms, they can also put firms under the regulator’s supervisory radar, potentially making them industry examples.
Therefore, it is advised that firms must approach these surveys with thoroughness and diligence, ensuring that their responses accurately reflect their practices and compliance with the duty – and mitigate the risk of any regulatory penalties.
4. Management information
Defining what constitutes good MI is a complex challenge, as interpretations vary across business models.
The regulator's promotion of itself as a data-led entity necessitates high-quality MI to identify poor governance and oversight.
However, the subjective nature of MI and the regulator's 'fair and proportionate' approach provide limited practical guidance.
MI should help firms monitor consumer duty compliance effectively, but without the senior managers and certification regime for payments, the regulator's leverage over senior management is limited.
The importance of getting it right and prioritising consumer outcomes
While it is evident that the consumer duty principles are a step in the right direction for the financial services industry, this legislation also offers firms the opportunity to build greater trust with their customers through increased fairness, transparency and accountability.
As our member Rohan Chakraborty, senior associate at Thistle Initiatives, states: "Firms do not necessarily need to be serving retail customers, nor do they require direct customer exposure at all, to be held accountable for ensuring good consumer outcomes."
Financial intermediaries, such as merchant acquiring services, may not have direct exposure to retail customers, and this can lead to the belief that there is no relationship with retail customers. However, any delays or shortfalls in the delivery of funds at these stages can have a negative impact on the end consumer experience.
Therefore, not only is it crucial that all financial firms prioritise consumer outcomes, but they should also consider how their business model, customer characteristics, and influence over consumer outcomes may redefine their understanding of whether it applies to them, even where a firm feels it has absolutely no direct contact with the consumer.
Conclusion
The financial services industry is currently navigating a transformative period as it adapts to the requirements of consumer duty.
While the duty has spurred innovation and prompted firms to reassess their practices, significant challenges and unresolved issues remain.
Firms must continue to refine their efforts to embed the duty’s principles into their organisational culture, leadership, and operational frameworks.
This means a shift towards proactive regulation, comprehensive data and monitoring strategies, and enhanced attention to vulnerable customers.
As the industry continues to adapt, it will be crucial for firms to share best practices, seek further guidance from the FCA, and remain vigilant in monitoring the effectiveness of their implementation strategies.
