Protection review

Consumer duty is still an agenda item for 2022

Mike Allison

head of protection, Paradigm Mortgage Services

We have now had the final rules from the Financial Conduct Authority (FCA) regarding the implementation of its consumer duty. There were few surprises in the body of the rules in terms of wording, although there have been some slight changes. Probably the most unexpected change is the requirement for each firm to have a plan or report – the first of which is required by the end of October 2022. This report will be required to detail pretty much every aspect of what a firm is doing to implement the culture change required in many instances to focus more on outcomes than on following specific sets of rules. We already knew that firms are required to undertake at least a review annually and an assessment of how they are getting on with the consumer duty. The review and assessment are now referred to as a report, and firms can expect to be asked by the FCA for that report along with “Management Information [MI] that sits behind it.” The report will require the board, or equivalent governing body, to review and approve an assessment of whether the firm is delivering good outcomes for its customers that are consistent with the duty. This assessment must include many aspects, such as:  the results of the monitoring that the firm has undertaken to assess whether products and services are delivering expected outcomes in line with the duty; any evidence of poor outcomes, including whether any group of customers is receiving worse outcomes compared to an other group; and an evaluation of the impact and the root cause  an overview of the actions taken to address any risks or issues  how the firm’s future business strategy is consistent with acting to deliver good outcomes under the duty

Before signing off the assessment, the board or equivalent should agree to the action required to address any identified risks or poor outcomes experienced by customers, and any needed changes to the firm’s future business strategy. Clearly, this means the firm must:  identify and manage any risks to good outcomes for customers  spot where customers are getting poor outcomes and understand the root cause  have processes in place to adapt and change products and services, or policies and practices, to address any risks or issues as appropriate  be able to demonstrate how they have identified and addressed issues leading to poor outcomes

As an integral part of the process, firms must start to collect MI in a way they perhaps haven’t done previously. Some of the MI will be available via insurers, but I wouldn’t rely on each provider being in a position to give it to all advisers by the deadline. Some issues such as persistence and customer retention may be instantly available to a firm, but more in-depth analysis of, say, details of why customers leave will be more difficult – although this may be an indicator to flag where customer treatment is contributing to high customer drop-off rates. The following is by no means an exhaustive list, but it gives a flavour of how firms may start to use MI to measure outcomes, which is not the easiest thing to do:  Distribution of products/pricing and fees and charges: reviews of whether certain groups of customers are more likely to buy certain products, incur particular fees and charges, or appear to be receiving outcomes that are not as good as those of other groups of customers.  Training and competence records: analysis of records of staff training, including remedial actions where staff knowledge or actions were found to be below expectations.  File reviews: reviewing customer files and monitoring calls to check for errors and assess whether customers received good outcomes.  Feedback from other parties in the distribution chain, such as manufacturers and distributors sharing information about the way in which products are sold, and the extent to which actual sales matched the target market.  Allowing staff to give honest feedback when they think products or services, or the processes used to deliver them, could be improved.

It is reasonable to think that not all firms will be expected to collect all this information; it must be relevant and proportionate to them. The key will be getting as much available data as possible to assess whether certain groups of consumers are seeing worse outcomes. Paradigm Consulting continues to support DA firms in preparing for these changes, and there is a huge amount of information available on the Paradigm Protect website for those looking for a steer. M I