This article is a follow on from ‘Consumer Duty – Audit considerations’ which was posted here in April 2023.
With the passing of the Consumer Duty implementation deadline on 31 July 2023, the FCA has been full frontally proactive in issuing a 14-point plan to ensure that banking customers are offered ‘fair value’ in relation to interest on their savings given that the FCA found that nine of the biggest savings providers, on average, only passed on 28% of base rate rises to their easy access accounts between January 2022 and May 2023. Good to see the FCA flexing its muscles at a time when Europe’s biggest bank just posted a pre-tax profit of $7.7bn for the three months to 30 September 2023.
For the insurance industry, there has been no such dramatic intervention given that the sector has had a long time to get in line with treating its customers fairly and applying customer centricity principles. That said, this author argued that, whilst at first glance, compliance officers may have had the impression that Consumer Duty is merely a re-branding of Treating Customers Fairly (TCF), the reality is possibly a significant shift in paradigm.
So what does the FCA have to say, post the 31 July 2023 deadline? From their post-implementation note of 18 October 2023, the FCA are clear that their ‘10 Key questions for firms to consider’ remain relevant and firms can expect to be asked questions like these in their future interactions with the FCA:
1. Are you satisfied your products and services are well designed to meet the needs of consumers in the target market, and perform as expected? What testing has been conducted?
2. Do your products or services have features that could risk harm for groups of customers with characteristics of vulnerability? If so, what changes to the design of your products and services are you making?
3. What action have you taken as a result of your fair value assessments, and how are you ensuring this action is effective in improving consumer outcomes?
4. What data, MI and other intelligence are you using to monitor the fair value of your products and services on an ongoing basis?
5. How are you testing the effectiveness of your communications? How are you acting on these results?
6. How do you adapt your communications to meet the needs of customers with characteristics of vulnerability, and how do you know these adaptions are effective?
7. What assessment have you made about whether your customer support is meeting the needs of customers with characteristics of vulnerability? What data, MI and customer feedback is being used to support this assessment?
8. How have you satisfied yourself that the quality and availability of any post-sale support you have is as good as your pre-sale support?
9. Do individuals throughout your firm – including those in control and support functions – understand their role and responsibility in delivering the Duty?
10. Have you identified the key risks to your ability to deliver good outcomes to customers and put appropriate mitigants in place?
Clearly, seeking exemption on the basis that firms do not have a Retail portfolio, or turning each of these 10 questions into factual statements and then merely plonking them into a Consumer Duty Policy, is not going to cut it with regulators. For example, and for some commentators the most challenging, firms will need to use their judgement to identify data sources as evidence against the outcomes of the Duty (Questions 4 and 7). From the FCA, now that the Duty is in force “we will prioritise the most serious breaches and act swiftly and assertively where we find evidence of harm or risk of harm to consumers”. Caveat venditor!