A question of duty is setting the standards

Aerial view of suburban housing and distant landscape, England, UK

Following on from my commentary on the present state of the AR:DA debate, I finished with the words ‘…the FCA will shortly be announcing its Consumer Duty initiative, which could provide yet another challenge for regulated firms and principals.’

Hopefully, unless everyone is already clued up, at least some readers might have googled the FCA website to see the guidelines to which we should all be working to when looking at the culture of treating customers fairly.  The culture of great customer outcomes is now front and centre whatever your regulatory status.  For Appointed Representatives there will be change guided by their network’s review of its advice model, and for Directly Authorised Brokers I’m sure there will be conversations with compliance support providers and an in-depth analysis of how this will impact on their business model.

According to a recent speech by the Director of Consumer and Retail Policy at the FCA,  ‘Consumer Duty will set the standards for firms in all retail markets including consumer credit’. Firms will need to have a greater focus on giving the customer a full view of the financial risks they run every day ensuring they can make an informed decision when making what is typically the largest borrowing commitment of their lives. 

The inference from the speech is that the regulator expects to implement a whole new standard for measuring customer outcomes which could make TCF seem like it was just the prelude to the main performance. The FCA also made it clear that it will expect firms to make more use of data to better manage and inform good customer outcomes. This suggests that new reporting requirements will expect regulated firms to improve as well as increase the volume and quality of the data they collect.

Inevitably this will mean that those firms that haven’t invested in the technology to understand who the customers are that they are talking to, why they are talking to them and ultimately the outcome of the conversation, run the risk of falling foul of Consumer Duty.  For ARs much of this technology is already in place as the regulator signalled some time ago that they were going to be led by the data.  Data gives you an idea of the risks you run, the solutions introduced to mitigate the risk, and evidence to identify if the solutions are working.  How many customers are there in client banks where there are dependents but no life insurance recommendation or what is the number is single people who simply could not survive financially if they were to lose their income through ill health?

I believe that in Consumer Duty the FCA is asking us all to look at two things – the culture in which we operate and our ability to use the information we gather every day to know we are doing the right thing for our customers.  Whilst we can tell the regulator we are doing a great job, the big change will be having to provide evidence to back up our claim.  For example, there will have been occasions where the obligation to go back and talk about the need to protect the family or to maintain a lifestyle may have been overlooked in order to prevent another customer moving onto SVR instead of completing the remortgage on time. The burden of proof will be firmly on us and the regulator will expect to see action. Best intentions will no longer be sufficient.

Principals in many DA firms will understandably be feeling that their business model just got that much more complicated.

Looking ahead

Over the past year I have felt we have been living in a Marvel Universe – first it was the risk of Delta and now we have the Age of Omnicom.  COVID, in whatever form to which it mutates will, no doubt, still be with us in 2022, but I am confident the financial services industry and in particular the mortgage sector will continue to adapt.

The improving technology links and the lessons learnt from working from home will stand us in good stead to keep meeting the needs of our customers whatever the pandemic coughs and sneezes at us over the coming year.

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