The Consumer Duty – what’s next?
Many firms have understandably prioritised their activity to comply with the substantive consumer duty requirements prior to 31 July 2023, however as implementation plans are ending, firms now need to think about their long-term compliance with the duty.
Termed ‘day 2 compliance,’ the activities are multifaceted and interconnected. This article is designed to help firms navigate what day 2 entails, useful workstreams, and share insights into how firms may approach them.
Workstream 1 – Carry Over
Prior to the implementation date the focus was on open product reviews, value assessments and taking the identified actions to prevent harms. Generally, good progress was made during this time, although, as alluded to in the FCA’s multi-firm review of implementation plans (Consumer Duty implementation plans | FCA), many firms prioritised higher-risk findings. Those remaining actions form the first workstream; the carry over for open products. They should be addressed in priority order and only where they sit outside of the firm’s risk appetite, granted the appetite is low when it comes to consumer harm. One action we’re seeing quite regularly is building the duty into QA frameworks, an essential move to enable reporting of customer outcomes.
As firms prepared for the duty, significant changes were often made to the governance framework of the organisation, with several aspects - such as product approval and product amendment procedures - in place before the implementation date. However, most firms have some further ‘carry over’ work which needs to be done before they can be considered BAU. This requires an understanding of the new procedures as well as a shift in the focus of management, something that requires time and patience.
Workstream 2 – Culture
As alluded to above, embedding the duty into your business is an important day 2 priority. To do this firms need to understand their goal, the culture they aim for and the target operating model in respect of the duty. An acceptance that the organisation has not yet optimised their consumer duty model is necessary to successfully embark on the workstream as well as a system to measure and continually improve. Therefore, sufficient MI reporting, systems and controls (aligned to capturing the required information), strong outcomes testing and a culture of improving are required. Continually reviewing the outcomes received by customers and taking steps to improve those outcomes will drive a level of cultural change within businesses, especially when matched with a strong accountability framework.
Workstream 3 – Strategy
Building on from embedding a strong consumer duty culture in your organisation is strategy. Here we encourage firms to identify and assess the strategic implications of the duty, reviewing whether the firm’s business model continues to align and identify opportunities arising from the duty including customer led growth. For example, pricing and profit margin implications within the broader product, service and price and fair value context will help to shape priorities.
Workstream 4 – Closed Products
The actions taken to assess open products is only half the story, we need to do this all again: this time for our closed products. Once again firms are required to undertake product reviews and value assessments, learn from them, and improve. Certainly, it should be easier this time around as the framework and understanding is in place, at least in theory anyway. There are a couple of pitfalls to look out for, firstly the product reviews cannot be a lift and drop of open product reviews, the PRIN 2A requirements are different. Secondly, there is a danger some may assume the MI required is now in place, however in reality this may not always be the case for closed products. We should learn the lessons from implementation of the duty so far and act fast to scope the data needed and put the wheels in motion to ensure it is captured and available.
To assist, we’re in the process of building our closed product review templates to compliment our popular range of consumer duty templates which can be found here: Consumer Duty Compliance Resources | RB Compliance Consultancy
Now is the time to reflect on the progress made to date, specifically the level to which the duty is truly embedded in your organisation’s culture and processes.