What should firms be thinking about?

The Financial Conduct Authority (FCA) launched the Consumer Duty (the Duty) this year, which is the biggest regulatory overhaul in almost 20 years and is part of the FCA’s mission to push firms to deliver a higher standard of consumer protection.

The Duty is designed to ensure that UK retail consumers have access to a range of financial products and services that meet their needs and offer them fair value. The Duty follows on from the Treating Customers Fairly (TCF) initiative and marks a continued shift from a rules-based regulatory approach to one based on outcomes. As part of this, firms must consider the needs, characteristics, and objectives of their consumers at every stage of the customer journey.

As well as delivering good customer outcomes, firms must understand and evidence how those outcomes are being met. The framework for achieving this has three new elements – all of which should be embedded within a firm’s culture and governance structure:

• a consumer principle;
• three cross-cutting rules; and
• four customer outcomes.

These are the core areas that firms need to focus on

• Post-implementation assurance: Assurance reviews of the implementation work performed by the firm to assure the board that requirements have been met.
• Governance and MI: Embedding an appropriate governance framework, supported by sufficient MI that feeds into the annual board self-assessment.
• Culture: Embedding the Duty into the culture of your firm, thinking about how this will be evidenced and monitored on an ongoing basis.
• Closed-book preparedness: Ensuring all work is done to meet the 2024 implementation date for closed-book products.
• The future: How are you considering the Duty in setting strategy, and addressing product and practice developments?

What is the FCA looking for?

With the Duty now live for open book products/services the FCA will be looking to firms for evidence of their compliance with the range of applicable requirements. Therefore, depending on your firm's business model you will want to consider prioritising potential areas of focus for an assurance review. These reviews provide the board and leadership with assurance that the work carried out to comply, and the systems and controls installed, are in fact delivering against expectations and within compliance of the Duty. The findings of these reviews also provide the regulator with evidence to consider as part of any review they may conduct.

A great place to begin considering where the FCA will place its focus is to start with key themes from the 10 questions the FCA released.

• Price and value assessments: The FCA is expected to publish updated findings on the price and value assessments in Autumn 2023 You must be able to demonstrate that your products and services continue to provide consumers with fair value and price, that they are reviewed and challenged on an ongoing basis and sufficient controls are in place to monitor this.
• MI and governance: The FCA communicated its expectation that firms employ the same focus on monitoring MI that measures outcomes for consumers that they do for monitoring sales or revenue generating functions. They will expect evidence on how firms' governance frameworks promote and support the delivery of good outcomes for consumers.
• Customer communications: The FCA will be looking for evidence of how firms have tested the effectiveness of customer communications. They want to see evidence of how firms have acted on those results.
• Vulnerable customers: Have you considered vulnerable customers and the journey they go through when engaging with your firm? The FCA will be looking for evidence of MI, discussion and challenge, actions and ongoing tracking.

How can we help?

Assurance reviews

We have an expert team of regulatory consultants and internal audit specialists in place to provide full 2LOD and 3LOD support. This can include, where required, support with co-sourced or outsourced reviews.

• We support clients with bespoke reviews on areas of key concern.
• Map the relevant requirements of the Duty to your business model.
• Provide opinion on your firm's compliance with the Duty.
• Provide insights on how you compare to peer and industry best practice.
• Conduct testing and interviews to assess controls.
• Provide recommendations on how to improve and enhance controls.

What is the FCA looking for?

The FCA has set clear expectations over a number of years that the tone starts from the top. This is seen with the introduction of SM&CR, recent enforcement case studies, and now with the Consumer Duty.

The board, or equivalent governing body, is now required to review relevant Consumer Duty MI and then approve a self-assessment/attestation that confirms your firm is delivering good outcomes for consumers and complying with the Duty. Many firms are designing this process in similar fashion to an annual MLRO report or compliance monitoring plan, the focus being on establishing a standalone Consumer Duty annual assessment report.

The report should capture:

• 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 are receiving worse outcomes compared to another group, and an evaluation of the impact and the root cause;
• an overview of the actions taken to address any risks or issues. A customer outcomes dashboard has also been considered by others to format their board MI; and
• how the firm’s future business strategy is consistent with acting to deliver good outcomes under the Duty.

How can we help?

Assurance reviews

• Provide independent assessment on the report findings.
• Provide assurance on the completion of any remedial actions set out throughout the year or following the next annual report.
• We have an expert team in place to provide internal audit assurance.

Regulatory advice

• Provide independent assessment on the report findings.
• Provide assurance on the completion of any remedial actions set out throughout the year or following the next annual report.
• We have an expert team in place to provide internal audit assurance.

Training

Deliver Consumer Duty focussed training to your board, executives, or one-on-one training for key functions such as the Consumer Duty champion or chair.

What is the FCA looking for?

Compliance with the Consumer Duty for closed-book products/services is expected by 31 July 2024, one year on from the ‘go-live’ date for the open-book products/services. While for some this may have felt like much welcomed additional time, time is indeed ticking ahead, and your firm has limited time left to deliver on this.

Firms will need to focus on how they will be able to evidence that the products and services, that whilst closed to new customers, now provide good outcomes despite being designed and offered years ago under different rules and expectations. This is a particularly challenging area of focus and one the FCA will be paying close attention to next year.

Firms will need to pay close attention to how the Duty applies to these products/services and have a clear project in place to address gaps before 31 July 2024.

How can we help?

Regulatory advice

• Provide impact assessments to assist with identifying which products/services fall within scope, define good outcomes and foreseeable harm and support with fair value and pricing assessments.
• Provide insights on what peers are doing and examples of good practice.
• Advise on the robustness of policies and procedures and offer recommendations on ways to enhance.

Implementation planning

• Assist in establishing and managing project plans to implement the requirements of the Duty for mapped closed- book products/services.
• Conduct interim reviews on implementation progress against set actions, this includes testing of new controls, interviewing key stakeholders to test understanding, assessment of policies and procedures and produce a management paper with recommendations.

Internal audit assurance

• Provide assurance, challenge over plans in place to review closed book products and how this will be evidenced.
• Provide live/ongoing assurance throughout the review period to ensure that the reviews are achieving the desired objectives for mapping closed book products and that appropriate evidence is being documented.
• We have experience supporting clients on a co-sourced or outsourced basis.

What is this all about?

De-banking or off-boarding of customers is the practice whereby a bank decides to no longer provide its services to a banking customer and provides them notice that their account will close. There have been a number of reasons surrounding this decision ie suspicious activities outside the bank's risk appetite, account inactivity/dormancy and a recently contentious reason around reputational impact.

Both the FCA and the government have published information setting out their expectations that banks ensure they are not offboarding customers for discriminatory reasons. The newly introduced Consumer Duty rules will force firms to evidence their rationale for such decisions and prove that they are delivering positive customer outcomes and not causing harm. We have already seen the FCA flexing the powers of the Duty through its recent review. The government has also recently announced that it will be consulting on a number of proposed changes to ensure subjects like free-speech are protected and not used as a reason to off-board a customer.

A range of regulated entities will now be under the increased scrutiny of the regulator for their approaches to de-banking customer accounts and the risk appetites they have in place for doing so. Some banks have already been approached by the regulator to provide data on the number of account terminations, reasons and volume of complaints linked to account termination. This indicates the FCA’s intention to expand their scrutiny on this topic which could result in enhancements to existing rules or the pursuit of enforcement action under the powers of the new Consumer Duty.

How can we help?

RSM has a range of solutions available for firms who are seeking to gain independent assurance that the controls they have in place, and the approach they employ to de-banking customers is in line with regulatory expectations. Utilising the expansive experiences of our team of consultants we can offer firms solutions that include the below.

Assurance Reviews

End-to-end deep dives into the de-banking process, this includes but is not limited to:

• review of policies and procedures linked to the de-banking of customers;
• review of governance practices and management information;
• review of past decisions made and complaints as well as sample testing; and
• assessment of risk appetite documents and controls in place to monitor customers and flag for de-banking.

Focussed reviews on topics such as:

• Consumer Duty and the interaction with de-risking and offboarding;
• firms’ information protection controls and media handling; and
• customer communication process for account terminations.

What is the importance of embedding a Consumer Duty focussed culture?

One of the key underlying objectives of the Consumer Duty is to encourage firms to develop a consumer-focused culture. Now, we know that for many firms' customers are at the centre of your business models, and you have created the cultural framework that supports that. However, the Consumer Duty now means that firms will need to be able to evidence their consumer-focussed culture. The question is, how do you do this?

Taking into consideration all previous messaging from the FCA, culture starts from the top and should be embedded in the company’s purpose and values. It should be woven into the fabric of how performance is managed and rewarded, people policies should detail the consumer-focussed approach the firm is seeking to embed, and procedures should detail how evidence should be recorded. Firms will now need to ensure they have in place clearly defined processes for the below.

• Record keeping – making sure you document the decision-making process for all key decisions that may impact customers, such as, governance and product oversight. What risks did you consider and how do you plan to mitigate?
• Customer outcomes – how has your firm considered the four outcomes? What level of resource have you employed to ensuring you make necessary changes to deliver good outcomes?
• Monitoring – management information and the collation and formatting of customer outcomes related data will be a key area of particular focus. What does your data currently tell you? Is this enough or do you require system changes? How are the board interacting with the data provided?

How can we help?

We recognise that the effective embedding of a good, customer-focussed, outcomes driven culture is not a quick fix and will be a multi-year project with consistent adjustments required. Therefore, what we offer our clients are focussed reviews aimed at providing assurance and recommendations on key cultural indicators. We offer advice on the approach firms should be taking, drawing on experience and insights from what market peers and best practice are showing. Our team is also made up of former regulators and industry peers bringing with them a wealth of insight and useful knowledge.

Assurance reviews

Culture reviews broken down by cultural indicators such as:

• purpose and values;
• tone from the top and governance;
• policies and control frameworks; and
• performance management.

Regulatory advice

• Provide insights on what peers are doing and examples of good practice.
• Advise on the robustness of cultural project plans.