"The new regulations go far beyond TCF in terms of the expectations of financial advisers, and the FCA will be ready to heavily penalise firms that fail to comply."
On 31st July, the FCA’s new Consumer Duty comes into force. Financial advisers need to ensure that they are compliant from the outset, as they can otherwise find themselves confronted with hefty fines and suffer reputational damage.
Chris Croft: Key considerations for financial advisers
For those working in the financial services industry, it is crucial to understand that the new Consumer Duty isn’t just a repackaged version of Treating Customers Fairly (TCF). The new regulations go far beyond TCF in terms of the expectations of financial advisers, and the FCA will be ready to heavily penalise firms that fail to comply.
To help them do so, the FCA published a list of ten key questions that firms need to have answers to in order to meet their statutory obligations. I think all advisers would be well advised to review those questions. One of the top priorities is whether you are satisfied that your products and services are designed to meet the needs of consumers in the target market, and perform as expected. This is where vulnerability policies and product development policies are crucial to ensure compliance. For the sake of this article, it is assumed that this is already part of good business practice, and that most companies already have the right building blocks in place.
Companies must also be aware that, although 31st July is the launch date for the Consumer Duty, how it is implemented and how you comply will only become apparent over time. It is an outcome-focused regime and outcome tend to judged in hindsight, and you will need to be able to demonstrate that you took the right steps to get the right outcomes at the time.
The biggest challenge in this regard is how to document and record compliance. This is where technology is key. Historically, lots of companies have recorded compliance and monitored customer outcomes through things like complaints data and other statistical data. Statistics on product cancellations, complaints and so on could be used to demonstrate whether products were reasonably compliant. This sort of quantitative data alone will no longer cut it under the FCA’s new rules – it will also take qualitative data, which in turn requires a proper CRM system to record the information.
This is what much of the Consumer Duty boils down to – better customer relationships resulting from clearer information and communication. Financial services providers can no longer assume that customers understand their products.
And this is why passive data-collection formats such as customer satisfaction surveys are no longer sufficient, as customers may feel they have received good service without ever being aware that their own grasp of the respective financial product is poor.
Advisers must, therefore, now proactively communicate with customers to ensure they understand what they are buying. And that includes through focus groups and other mechanisms to truly get to terms with your customers' understanding of your product. Further, and importantly, advisers will be expected to carry out annual reviews of their customers to ensure that customers are supported in achieving their expected outcome. All of this communication must be documented from the outset if you don’t want to fall foul of the FCA or of the Financial Ombudsman Service if your customer complains.
Josh Skelding: Using technology to meet your reporting obligations
The Consumer Duty demands that advisers effectively communicate with consumers to give them a clearer understanding of products and processes. This is where technology comes into play, aiding in the communication process by giving customers the information they need when they need it in a way that helps them easily understand it.
This goes hand in hand with providing consumers with support, which advisers are obligated to provide evidence for under the new regulations. Here, technology once again comes to the rescue, allowing advisers to automate and store the required information.
When it comes to the specific tools available to advisers, they will find that many of the leading advice technology providers have been collaborating with industry-wide working bodies to implement the necessary changes to their technologies in order to support any new processes ahead of the introduction of the FCA’s legislation.
Two of the watchwords of the New Consumer Duty are transparency and accountability, which the new legislation clearly defines as an expectation that advisers will prioritise providing information to customers that they can easily understand. There are tech tools available that store this information and make it accessible to advisers and customers when needed. It is also possible to automate communication so that advisers are freed up from having to track and save data and can instead focus on customer outcomes.
The new Consumer Duty also requires advisers to be aware of the needs of vulnerable customers. Reporting with the use of technology can help advisers to understand which customers are classed as vulnerable, what makes them vulnerable, what fees clients have paid for which services over a certain time period, and which clients have not had any kind of review over a certain time period.
Technology is key to helping advisers monitor and document interactions in line with Consumer Duty requirements. It smoothes the transition from having everything in silo to putting it all under one roof and giving ease of use to the adviser. By using technology that automates workflow, advisers can rest assured that they are meeting the FCA’s latest guidelines and refocus their energies on delivering the best outcomes for their clients.
