In the UK, the Consumer Duty is a cornerstone of the Financial Conduct Authority’s (FCA’s) three-year strategy, “to deliver good outcomes for retail customers.” This is a step up from previous regulations that will require financial services firms to put their customers’ interests at the forefront of their decision-making. Doing so will necessitate that organizations enhance their data capabilities to effectively monitor and improve outcomes for customers.

The Consumer Duty focuses on four outcomes: 

1. Products and services: These must be designed to meet the needs, characteristics, and objectives of a specified target market. 
2. Price and value: Products and services should provide fair value with a reasonable relationship between the price consumers pay and the benefit they receive. 
3. Consumer understanding: Firms should communicate in a way that supports consumer understanding and equips consumers to make effective, timely, and properly informed decisions. 
4. Consumer support: Firms need to provide support that meets consumers’ needs throughout the life of the product or service.

Underpinning these outcomes is the need to ensure good outcomes across all customer groups, including those with characteristics of vulnerability and those experiencing financial difficulty.

The FCA Review in Brief 

Earlier this year, the FCA published a review of firms’ Consumer Duty implementation plans, highlighting the positive progress made by some, but also the deficiencies in the approaches of others.

In particular the FCA highlighted the need to: 

• Effectively prioritize activity to ensure the biggest impact on outcomes for consumers 

• Make changes that lead to better results across the four outcomes, and not assume existing policies and processes will be adequate 
• Work with other organizations across the distribution chain

One area highlighted in the review that cuts across all four outcomes of the Consumer Duty, is Data Strategies.

Here the FCA highlighted best practices, e.g. where firms have set out long-term strategies to enhance data collection alongside short-term solutions to monitor outcomes.

The review also addressed areas for improvement – highlighting where firms are focused on repackaging existing data and not conducting a broader assessment of the types and granularity of data needed to effectively support the four Consumer Duty outcomes.

To create a roadmap to success, the review underscores the need for firms to look beyond the status quo when it comes to their data strategies, to look at long-term strategies alongside short-term solutions and to consider how they can make better use of a broad range of data to impact and measure customer outcomes.

Key Themes in the Dear CEO Letters 

In February, the FCA published a series of letters that were sent to CEOs and Directors from a wide range of financial institutions including retail banks, mortgage lenders, general and life insurance companies, consumer investment firms, and asset management groups.

The letters included a reminder of the implementation timeline, sector-specific expectations on how the Consumer Duty should be embedded, feedback from the recent review, and details outlining the supervisory approach and next steps.

Importantly, these letters highlighted the key focus areas for the FCA’s supervision of the various sectors, and referenced specific concerns and expectations across a set of wide-ranging themes such as product governance, claims processes, support for SMEs, and high-risk investments.

Key themes included:  

• Financial difficulty: The FCA has put increased emphasis on the need to ensure identification and appropriate support for individuals and businesses who are experiencing financial difficulty, in light of the high inflationary environment and cost-of-living crisis. 
• Product relevance and targeting: There was an emphasis on the need to ensure that products and services are only targeted and distributed to a carefully defined target market – particularly in regard to consumer investments, general insurance, and retail banking. 
• Complacency: The FCA reinforced that the Consumer Duty raises the bar on expectations and that firms should not be complacent and expect that existing approaches and outcomes are “good enough,” as per the implementation review. The letter to retail banking, for example, emphasized that firms should not overestimate the progress they have made in the context of “treating customers fairly” or the importance of a purpose or culture in achieving customer outcomes. 

• Data Scope: The FCA highlighted the need to think afresh about the scope of data used to measure and drive improvements in the outcomes and customer experience, in particular, for retail banking and mortgage lenders, as well as in general insurance to support fair value assessments across products.

While many firms will likely be able to build on their existing data and refocus it through the Duty lens, all firms should think deeply and afresh about the types and granularity of data they need to monitor and evidence outcomes under the Duty and drive further improvements in customers’ experience.

FCA review 

Next Steps and Areas of Focus 

The implementation review and Dear CEO letters certainly provide much food for thought for firms, particularly with  the implementation deadline in July rapidly approaching.

In addition to the deadline, some firms can also expect engagement from the FCA along the following timeline: 

• From April 2023 there will be reviews of how firms have assessed customer outcomes against the Duty using existing data, as well as exploring gap analyses for particular products, services, and customer journeys. 
• From September 2023 firms will be engaged to review specific changes that have been made based on the initial gap analyses, as well as the enhanced data, indicators, and dashboards, which should by then be used to monitor outcomes. 
• From January 2024 there will be a review of what this enhanced, outcome-focused data is indicating about customer outcomes and if they are consistently meeting the Duty. 

To make implementing these recommendations easier, here are some of the key areas of focus and next steps firms should focus on now.

1. Identify course corrections in light of the FCA review: Firms should take stock of the FCA findings and letters, and assess what these mean in the context of their own implementation plans and any adjustments that should be made – with a particular focus on the areas highlighted in the letters. 
2. Ensure effective prioritization and resource allocation for the implementation deadline. Having identified any appropriate adjustments to their approach, firms should then look to reprioritize efforts to ensure they have the biggest impact on customer outcomes by the July deadline, and ensure adequate resources are allocated to support these changes.
3. Assess the extent of the data needs associated with the Duty: While many firms will likely be able to build on their existing data and refocus it through the Duty lens, all firms should think deeply and afresh about the types and granularity of data they need to monitor and evidence outcomes under the Duty and drive further improvements in the customers’ experience. All firms must carefully design, source, and deliver the data and dashboards they will need for this with an emphasis on the quality, focus, and clarity of management information and indicators rather than their quantity.
4. Look to the future: The FCA has highlighted the need to establish long-term strategies alongside short-term solutions, and firms should use this as an opportunity to build a case to move towards a data-driven, customer-centric operating model that enables enhanced tracking and optimization of customer outcomes. This will help organizations move beyond simply complying with the Duty to deliver a differentiated customer experience and create a competitive advantage.