The Consumer Duty code is a significant evolution in the landscape of UK financial services. It isn't just another regulatory hurdle to clear; it's a transformative opportunity for firms to deepen their commitment to consumer protection and fairness across all operations.
The Consumer Duty sets a new benchmark for how firms engage with their consumers. It's a call to action, urging businesses to look beyond mere compliance and view this as a chance to innovate, enhance operational efficiency, and build lasting trust with customers. But what does this mean for your organisation, and how can you turn it into a strategic advantage?
Let’s explore how you can navigate this enhanced regulatory environment, with practical steps to integrate the Consumer Duty into your business operations effectively and make it a cornerstone of your business strategy, enhancing your reputation and securing your position.
Business value proposition
Embracing the Consumer Duty is not merely about regulatory compliance; it's about seizing an opportunity to differentiate and drive value in an increasingly competitive and consumer-centric financial services market. Firms that integrate these principles into their business models can expect to reap significant benefits, transforming a regulatory requirement into a strategic asset.
The process of adapting to the Consumer Duty encourages innovation and efficiency. It prompts firms to scrutinise and optimise their product offerings and operational processes, leading to more effective risk management, product design, and service delivery. This not only ensures compliance but also drives operational excellence, reducing costs and fostering a culture of continuous improvement.
At the same time, embedding the Consumer Duty into their operations should have a positive customer impact. Enhanced customer satisfaction and trust translate into tangible financial benefits, from increased sales and cross-selling opportunities to a reduction in the costs associated with customer complaints and regulatory penalties.
The strategic integration of Consumer Duty principles also positions firms to better navigate future regulatory changes and market challenges. By building a robust framework for consumer protection and ethical business practices, firms can enhance their agility and resilience, ensuring long-term sustainability in a rapidly evolving marketplace.
Finalising operational readiness
Business checkouts and handovers are imperative to the integration of the Consumer Duty into business-as-usual operations:
Governance framework: The development and implementation of a robust governance framework that clearly delineates roles, responsibilities, and accountability for Consumer Duty compliance. This framework should be supported by strong leadership and a commitment to cultural change, emphasising the importance of consumer outcomes at every level of the organisation.
Risk appetite calibration: Consumer duty potentially triggers a review of the risk appetite statement and specifically conduct risk calibration in light of the FCA's Consumer Duty expectations, risk tolerances may need to be reassessed and perhaps new metrics added to ensure adequate coverage and monitoring at board and executive level. There is an also an obligation on firms to demonstrate completeness and validity of metrics/tolerances being assessed. Mistakes and issues are often hidden due to them not being monitored or assessed as too difficult to measure. Data integrity must be challenged as stakeholders must have confidence in the outcomes illustrated.
Product review: Firms must conduct a thorough review of their product and service portfolios to ensure alignment with Consumer Duty requirements. This includes assessing product design, target market identification, distribution strategies, and post-sale support to ensure that they are all geared towards delivering fair outcomes to consumers. Regular monitoring and review mechanisms must be put in place to ensure ongoing compliance and to identify areas for improvement.
Process adjustments: Operational processes must also be adjusted to incorporate Consumer Duty principles. This includes enhancing risk management practices to identify and mitigate any factors that may lead to consumer detriment, as well as implementing robust testing and assurance programs to verify compliance.
Training and awareness: Training programs are critical to ensuring that all employees understand the importance of the Consumer Duty and their role in achieving compliance. These programs should be designed to foster a culture that prioritises consumer protection and embeds Consumer Duty considerations into daily decision-making processes.
Day two implementation
As part of the integration into business-as-usual, firms will need to ensure Consumer Duty is embedded into their operations to allow longer-term reporting, monitoring and adherence.
Technology: Firms need to leverage technology to streamline the integration of Consumer Duty into their operations. Advanced data analytics enable firms to gain deeper insights into consumer behaviour, product performance, and potential areas of risk. Automated compliance monitoring systems can help in continuously assessing the firm’s adherence to Consumer Duty requirements, identifying discrepancies, and enabling swift corrective actions. Digital reporting tools streamline the process of documenting compliance efforts, generating reports for stakeholders, and ensuring that information is easily accessible for regulatory reviews.
Reporting: Clarity in reporting outcomes now becomes a core focus, organisations seeking to achieve best practice will require technology to support (see points above) but also a clear reporting design strategy given the layered audiences which will review and act on Duty outcomes.
At a minimum, management reporting should support the following:
- Metrics: The report will need to include appropriate quantitative and qualitative metrics that inform the summary ratings and conclusions on monitoring outcomes. The report should be designed to enable effective decisions, supported by accurate, timely, relevant and consistent data with supporting commentary. Metrics outside of tolerance must be supported by qualitative commentary
- Effective board governance and oversight: The board will be expected to set out risk appetite in relation to the Consumer Duty, which means they will require accurate, timely and relevant information to make decisions on. This process requires technology to drive efficiency and enable fast and agile decision making and support annual board attestations to confirm compliance with the spirit of the code.
Oversight and assurance: Going forward second- and third-line functions will need to perform their duties in challenging robustness of Consumer Duty outcomes. Internal Audit needs to incorporating the Code into their audit universe and plans for FY24/25, as the control environment underpinning the code becomes embedded.
Conclusions and next steps for your organisation
The transition to the Consumer Duty regime challenges organisations to not only meet the new standards but to embed them deeply into their operational DNA, transforming regulatory requirements into competitive advantages.
The journey to integrate the Consumer Duty into your organisation will ultimately be rewarding, but it is a complex process that requires a comprehensive grasp of its foundations, practical steps for operational integration, and a clear strategy for ongoing compliance and consumer protection.
If you’d like to deepen your understanding of the Consumer Duty and explore practical strategies for its integration, you can downloading our free How to drive business value by embedding Consumer Duty white paper. Gain insights into making the Consumer Duty a cornerstone of your business strategy, ensuring your firm is well-equipped to navigate the complexities of today's regulatory landscape and emerge stronger, more resilient, and consumer-centric:
