This week we hit the first anniversary of first implementation deadline for Consumer Duty, it’s a fitting time to reflect on the impact on manufacturers, distributors of investment products and clients.
The shift toward a more principals-based regulation has been an interesting concept—a set of rules that aren’t really rules. Instead, an expectation of how to conduct business without a clear manual detailing right from wrong. But Consumer Duty pushes the industry beyond merely ‘doing things right’ to ‘doing the right thing,’ encouraging us to view every decision through the eyes of the client.
While ticking boxes for ‘compliance’ with the Duty might have been the start line, what we truly need is a cultural change—and that’s challenging. This is why the regulator anticipates that fully embedding Consumer Duty will take time. Whilst the FCA is clear that it does not intend to punish firms for technical breaches, the expectation is that it will not shy away from using its supervisory tools to sanction those firms who are not proactive in mitigating harm to consumers. Firms should work towards implementing the good practice examples and removing practices the FCA has identified as at risk of causing harm.
The FCA has said repeatedly that firms must put data at the heart of their response to the Consumer Duty, using new sources of data to design comprehensive measures that evaluate consumer outcomes as well as process outcomes. Firms should also look at their role in distribution chains and take steps to support good outcomes for consumers, even if they do not have a direct relationship with them, including by sharing information effectively.
Given the nature of information sharing in the distribution chain, this has been a challenge. Firms should consider reviewing and utilising the industry templates available to assist (for example, EMT v4.2 for manufacturer-to-distributor information flows), and the data framework (Distributor Feedback Template) that has been agreed to support the distributor-to-manufacturer feedback loop.
The FCA has made it clear that whilst firms should leverage their existing data capabilities firms cannot use the non-collection of relevant data as an excuse to avoid monitoring potential harms, and they will look favourably on firms that have made reasonable efforts to identify and proactively address concerns, even if mistakes are made.
Therefore, It’s vital that firms detail their data gaps and develop plans to enhance their understanding and monitoring of Consumer outcomes regardless of where they sit in the distribution chain.