With the first year anniversary of the implementation of Consumer Duty fast approaching, Simon Hill, Managing Consultant at FinTech Compliance, reflects on his experiences of supporting FinTechs with the Duty, and the common challenges firms face. |
As we edge closer to the 1st anniversary of the Duty’s inception, it feels like it has been a part of our lives for much longer. Much like the welcoming of a new child into the family, there comes a point where you simply cannot remember a time without it. (I’m not for one second suggesting that people hold the same affection for the Consumer Duty as they would a child). That point feels particularly true for myself or anyone else in the consultancy space, as it’s been the hot topic for most of my clients across all sectors of financial services, whether its insurance, payment services, consumer credit or wealth-tech. However, as we move away from the introduction of the Duty, the focus has shifted away from implementation plans and more towards continued demonstrable measures and the monitoring of outcomes. As highlighted in the speech by the FCA’s Nisha Arora, back in November 2023, the Consumer Duty is not a once and done exercise. Firms need to make sure they are learning and improving continuously and must be able to evidence this in their annual board report. The advice I find myself turning to when underlining most discussions around the Duty is that it shouldn’t just be a tick box exercise. I know this is something that is echoed across the industry (almost to the point where, ironically, its repetition has transformed it into just another box to tick on the regulatory checklist). However, it is true! The introduction of the Consumer Duty put the onus on firms to take a long hard look at themselves and decide if they truly have consumers’ best interests at the heart of their operations. Whilst, in my experience, this has been a useful and effective exercise, the real test of firms’ commitment is yet to come. It is the effectiveness of the data and intelligence firms can gather which will determine their capability to be confident that the outcomes they believe they deliver are actually being delivered. If you think your product is designed to be perfectly aligned to your target market, great – how can you evidence this? If you believe your product performs as customers would reasonably expect, wonderful – what data backs this up? If you think you have successfully identified and subsequently remedied a recurring issue, fantastic – from where did you draw this insight? Without the necessary information to provide firms with that insight, firms could quite easily find themselves falling into the boardroom echo chamber of,‘of course our customers receive positive outcomes!’ Some of the work I have been doing with our clients has involved a period of reflection, looking back over the measures taken to meet the requirements of the Duty, and questioning the effectiveness of those measures. Furthermore, as of the 31st of July 2024, the Duty will also apply to firms’ closed products and services. This further emphasises the expectation the FCA has that, after being granted a 1-year extension to the applicability of the Duty to closed products, firms have had ample time to get their act together in relation to new products such that they can now focus on closed ones at the same time.
Whether firms are looking at closed products and services, or continuing their work on current ones, the approach to Consumer Duty compliance can be likened to that of risk management. That is to say;
Furthermore, what goes without saying - but I will say it anyway - is that the above process should be recorded. As with most things in our space, if it isn’t recorded, who’s to say it ever actually happened. If firms can follow the above process, what they should end up with is a record of the journey they have taken to ensure continued compliance with the Duty. What’s more, firms can empower themselves to ensure they are well placed to deal with regulatory pressure, as the FCA’s scrutiny only appears to be increasing. After all, let’s not forget, after the Consumer Duty’s first birthday comes the terrible twos! |
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