How to tame the Consumer Duty
Our work with mid-size and larger firms suggests that there are three pillars that always underpin a successful response to new regulation - the Consumer Duty is no exception.
The cart and the horse
The Consumer Duty is a big piece of regulation, it touches many parts of a firm’s operation – sales, marketing, product/service development, customer support, governance and others. In fact, the regulation is sufficiently broad for it to be difficult for financial services firms to know where to begin their journey to compliance.
The answer reached by many of our clients is entirely logical: “It’s called the Consumer Duty so we start with our customers, obviously. If they are happy, we are happy and the regulator is happy.” Our clients focus on questions such as: How detailed is our knowledge of our customers? Can we segment them into logical groups? Could any be classified as vulnerable? How do we measure whether our product/service has met our customers’ expectations? How do we track and manage complaints?
And, yes, the FCA is interested in outcomes, and those outcomes are all about the customer. As the regulator has said: “The Consumer Duty will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.”
But is it always right to focus purely on your customers? I would argue that, for many firms, this approach to the Consumer Duty can put the cart before the horse.
A possible analogy might be space travel. If you are going to send people into space, the world’s attention is naturally focused on the launch, flight and safe return of those astronauts. Much less is spoken of the months and years of planning, innovating, testing, refining and finally approving the mission.
So, in a rather less glamorous way, with the Consumer Duty. Yes, it is about happy customers whose expectations are being met and who are protected from harm. But the real question for firms is how do you deliver these outcomes, now and into the future? What does your Consumer Duty mission look like?
Three pillars that underpin a successful mission
We’ve analysed our work with financial services firms, both large and small, to try to understand what the real, underlying drivers are for the successful adoption of new regulations.
Previously, we have worked extensively with firms around the Senior Managers and Certification Regime. Now, our work is focused on the Consumer Duty where we apply our CD Control Room method to drive out any gaps in a firm’s implementation of the Duty.
Our findings suggest that there are three consistent themes that characterise the effective adoption of new regulations irrespective of whether the firm is a big bank or a small wealth manager.
1. Turbo charged leadership
This isn’t purely about governance that focuses on what could go wrong and erects lines of defence. A firm does need a Consumer Duty Champion and the ownership for outcomes does need to be reflected in senior managers statements of responsibility. But this is more than that, this is about highly visible and consistent leadership across the firm that is fully accountable and puts the customer at the heart of the firm.
Lessons can be learnt from other industries here; I spent some time talking to senior managers in the construction industry about the transformation to a culture of employee safety that now underpins all their work. Here’s the perspective of one of those managers:
“If you walk past a building site now and look closely you will notice certain things, every employee will be wearing a hardhat, a high viz jacket, gloves, googles, all the appropriate protective equipment. 30 years ago that was not the case”. He is clear about what drove this change in safety practices in UK construction “Who’s the boss? Right, if anybody else dies on your site you are going to prison”.
I was interested to understand how this might play out in practice, as a leader in the construction industry needing to shift their whole organisation towards this culture of employee safety. The manager was clear that the leadership team need to decide that this is their number one priority and act on it.
He gives me an example of how this works in practice: “The top-down message in our business has been so strong that the first item on the agenda of any meeting, anywhere in the world is safety. It doesn’t matter if they are having a conversation about sales and marketing, the first agenda item is still safety”.
That is how leadership can change a culture and the same approach will help a financial services firm to put the customer at the heart their business.
2. Unconscious compliance
Regulation in general (and most certainly, the Consumer Duty) shouldn’t be implemented as a series of checks and balances tacked onto existing processes. Instead, it should present the opportunity to re-evaluate core processes and adopt new ways of working that embed compliance into every step.
Our experience is that this often leads to the simplification of processes and greater empowerment of staff as firms become less fearful of detailed regulations and instead, embrace their broader purpose.
One of our clients described this approach as “unconscious compliance” – an approach that weaves the regulation into the processes and working practices that shape everybody’s jobs.
As our client said: “The regulator is concerned about detriment to our customers so our staff training and our processes all needed to ensure that the journey we take a customer down does not present any risk of detriment to that customer. We needed to empower our employees to do their work in the right way so that it becomes second nature.”
In summary, the successful implementation of new regulation is always characterised by process and behaviour change that results in compliance as a cultural norm, quickly exposing any signs of non-compliance.
3. Adoption of technology
There is a lot of great technology available that can help firms to comply with incoming regulation. Smart firms invest in these solutions because they know that they will deliver cost saving through automation and help to underpin consistently high performing processes.
Implementing the Consumer Duty is a challenge where software solutions can most definitely help. In fact, the regulation is so broad that the list of possible solutions can seem endless.
Here’s a taste:
Governance and accountability
CX, customer insights
Speech and customer interaction analytics
Customer lifetime management
Training and competence
Process and workflow automation
Our research suggests that the challenge facing firms is not “Should we be investing in technology to help with the Consumer Duty?” but rather “Where, on earth, do we start?”.
There is no single answer to this question because every firm has made its own previous investment in technology and has its own Consumer Duty weak spots.
However, the one consistent theme that emerges is that the firms with the strongest grip on the Consumer Duty are those who have invested the effort into creating a single, prioritised plan for technology deployment.
There is a question we are often asked by our clients that comes in a variety of forms but can be summed up as “Where’s the finishing line?”. What the question really means is, how do we know when we’ve done enough to fully comply with the Consumer Duty?
I think that there are two aspects to this...
The first revolves around evidence – a firm’s ability to show the FCA documented proof that they have considered and acted on all aspects of the Consumer Duty is critical. People might say that this is just a tick box response to the regulation; my answer would be that, done properly, creating and collating this evidence forces a firm to think and that this thinking leads to change.
The second aspect can be summed up in one word – culture. The FCA themselves mention culture multiple times in the Consumer Duty Final Rules and Guidance. Our findings are that a firm has indeed reached the Consumer Duty finishing line when it has shifted its culture to one that puts the customer at the centre of all they do.
Importantly, the result of this culture shift will be high levels of unconscious compliance and not a heavily bureaucratic, rule bound organisation. One of our clients described this best:
“The end result of all our Consumer Duty work is that the regulation feels more like a trampoline than a strait jacket. Our employees know that the regulation is there for a reason and they don’t feel that it constrains them, rather that it brings logical, natural limits and delivers a clarity that releases and empowers them.”