Consumer Duty: What needs to be done now – [FULL INTERVIEW]

0:02
So hi, everyone. I’m here back with Kevin still, from Kevin still consulting, and he got roles in the vulnerability registration service. So Kevin, good. Good to see you again. I know we chat a fair bit, it was what I thought it’d be worth US chatting about a little bit was the new consumer duty that’s kind of coming up. So obviously, we had the guidance that kind of kind of came through and got solidified. And I know there’s, there’s a deadline now, right at the end of October.

0:27
Yeah, you’re quite right, Chris. So there’s been quite a long lead into this with two consultation papers. But I think the reality was at the end of July, when the policy statements are what is known as PS 22. Nine. And what came with that was some non handbook guidance, which is called FG, 22, five. But the combination of those really sets out the landscape in terms of what firms have got to do. And that’s based upon a strong presumption that you’ve actually read the previous consultation papers and done some preparatory work for it. Whereas in reality, I think it’s hit a number of firms quite hard that they’ve got to think about the first deadline, which is the 31st of October, to have a transformation plan ready that could be ready for inspection with the regulator themselves.

1:16
So what’s what needs to be done at the end of October, right, because that’s not that’s not far away. I mean, what sort of start of September now, and he gives like a couple of months. So what needs to be there needs to be like a duty officer. And then there’s a plan that that everyone has to put together?

1:29
Well, there are a number of obligations and commitments to it, and probably strong suggestions in amongst it all, but the deadline for the first round of implementation is July 2023. And then there’s a secondary target of July 2024, for closed accounts. But I think most people will be looking at what’s happening with new onboarding of customers and how you treat them and existing active customers. Now, for those that have got a supply chain, there is an earlier deadline of April 2023. So if you happen to be, for example, a principal with appointed representatives, or any form of agent network, you need to be ready by April to give them three months to implement what the new manufacturer or distribution chain would look like in the language of the regulator.

2:18
The FCA might be sort of auditing as I as I understood it from the 31st of October, like auditing the plans or like reviewing the plans, how do you know if the plan hits the right point? Because there’s these four outcome rules just sort of go back over consumer duty that they’re going to be sort of go against or review against? But how do you make sure that you’ve, you’ve ticked all the boxes, I suppose, to a certain extent in terms of making sure you’re minimising risk?

2:43
Well, I think there’s the UK finance have just highlighted, it’s not a tick box exercise. And the problem with principle based outcome focused regulation is it’s not rule based. And therefore you can’t go through with a, an easy checklist off the back of that. So the reality is, is they’ve given you lots of clues within it. And I’ve actually posed a lot of questions within the non handbook God guidance. And, you know, my suggestion, the first step is to ask yourself those questions and whether you can say yes or no to them black or white. Because I think greatness is the area that is going to cause concern. They’ve also suggested strongly that this is a risk based exercise. So where this relates to consumer outcomes, and in particular, avoiding consumer detriment start in the places of highest risk. And they’ve also suggested very strongly that you put as much effort into the back end as you do into the front end. So not only will you be looking at financial promotions and onboarding processes, but it will look at the whole lifecycle of product design. And whether you are delivering the right outcomes, particularly for active accounts, all the way through into complaint handling and beyond. So I think most firms will have an idea, particularly in the sectors that are in where their areas of exposure are. But fundamentally sitting underneath this, it’s about can you actually evidence things? And can you make sure that your management information key performance indicators are outward focus rather than inward focused? So are you meeting the client’s objectives? And indeed, do you know what the client’s objectives actually were? And when something cancels or terminates? Was that a good outcome or neutral one or a bad outcome? Yeah,

4:31
I mean, obviously, you know, the industry really well. What do you think the state of readiness is of us speak with people across the industry in terms of putting some of this stuff in place? I mean, it seems like quite seems like there’s quite a lot to do to actually get ready to ask some of the questions that are sort of quite a fundamental questioning level, if not, you know, a detailed sort of a process review kind of level.

4:51
I think anecdotally if I looked at it in the middle of the summer holidays in August and asked companies, have you appointed your duty duty champion, need did receive a lot of blank looks as to what is the duty champion that came in in the final wave of changes. But there needs to be somebody that is sufficiently capable and competent to be communicating directly with the board, or the stakeholders that are accountable under the senior management regime to actually take you through this transformation process. And that’s going to cover all the bases. Now, this isn’t a technology led initiative. It’s all about business readiness. And very much of this goes all the way down to the conduct rules to frontline staff. And I suspect, therefore, the acid test will be does somebody at the coalface dealing with consumers actually understand what all of this means? Yeah.

5:48
And I suppose when you look at the totality of stuff that needs to be done, you talked about, like avoiding customer detriment, detriment? I know, there was pieces there around like communication channels and some of the cross cutting rules, I thought were quite quite interesting. In particular, where do you think the sort of like the top five things would be in terms of like, this is where you think the industry we’ve got to really focus on because there probably isn’t the readiness level there. Yet,

6:12
I think if we focus more around the smaller, medium sized firms, and again, those that are probably likely to have several products and services, I think the customer centric approach is one of those And fundamentally, your business is still very siloed, in terms of how you deliver things, that the regulator has been very clear on that in some of the work that they’ve done in the last 12 months or so around the vulnerability guidance, which was fg 21, slash one. Now, even that’s got to be updated because part of this process is displaying principle six and principles seven in favour of the new principle 12. Now, under the TCF treating customers fairly, there are six TCF outcomes, they’re being set aside as well. Now, a lot of people’s core staff policies are built around those funds, fundamental outcomes. And, and that includes things like basics like complaint handling, but within that relating to thing, the advice you give, and then how you communicate, all of this is really looking at a ground up review of what you’ve got, you know, and these are really frontline policies and how they are actually delivered and operationalize. So it’s quite sweeping. So if you don’t actually have that customer centric view, which has said the regulator highlighter was a problem. And for those firms that couldn’t do that the Telus once type approach becomes very difficult indeed, particularly around people that show characteristics of vulnerability. Things like fair value will vary dramatically from one product or service provider to another, clearly the insurance sector has been hit very hard around that, between how you deal with new clients versus existing clients. And channel could become a big factor in that as to, you know, should something be cheaper if you’re doing it digitally versus in a branch. Whereas others, where there’s actually no direct cost to the consumer, it’s free to consumer fair values kind of become less of an issue, but quality of service, particularly communications. And there were some interesting stuff, Chris, that we’ve discussed before around digital first. And there are some very strong warnings in that if you’ve adopted a digital first model, beware, in terms of who your target audience are, you know, and there are lots of things in there around words like tech savvy, you know, you’re not expecting your whole client base to be tech savvy. You know, many people have got a smartphone, it’s one of the primary methods of engagement, but it doesn’t mean to the exclusion of not using the telephone itself, or traditional mail and other communication methods. So all of those are factors in this relating to your own risk appetite, your Target Operating Model, realigning that and said in the way that we operate, is it geared towards those clients now, for those with infrastructure, like banks, where they had a branch network, and they’re closing at a rate of knots, but somebody took, you know, their bank account out 20 odd years ago, you know, in the case of probably you and I, you know, did you buy into that at the beginning? And did you have an expectation you were still going to get serviced in the way that you wanted to? And for all of us that have said, look, they sat in a call queue saying Your call is important to us. But we’re experiencing unbelievable volumes of the moment. People are very cynical at the moment because we’ve come out of pandemic and they expect people to be resourcing the phones adequately at the moment. So it’s not just the method, but it’s actually the response times and the quality there that live Hang up to the promise. And often this relates to the financial promotions, if you’re promising the world, but the underlying experience doesn’t live up to it. That’s all part and parcel of the consumer duty. When you look at it relating to you, are you meeting the client’s objectives?

10:16
And one question I want to ask you is obviously, in talking to quite a lot, the last couple of weeks around cost of cost of living, there’s no help around energy prices for consumers at the least anyway. I mean, how much of how much do you think the consumer duty is going to play into the cost of living, and particularly its importance now going forward from a regulatory point of view, versus giving, making sure consumers are both either getting help directly from the government, but then also getting protection as well, from the regulator,

10:44
they should go hand in glove. And I think, again, from the FCA spec expectations, I think they probably have gone the extra mile in laying some of this out very clearly in terms of the non handled guidance of illustrating what is good practice, what is poor practice, and most recently, in June, writing the dear CEO letters, and then the more public ones, which were consumer facing in early July, which talks about the cost of living explicitly in relation to the consumer duty, and making sure that lenders don’t put their own commercial interests ahead of those consumers. But this is also cross sector. And as we’ve seen, with things like gambling, it’s not targeting the gambling providers, it’s targeting lenders, who may well actually be funding a gambling habit, and using some of the tools at their disposal, and they talk about things like open banking, but not exclusively. So it’s talking about a toolkit that you use appropriately and proportionately to get better understand your customers. And if you’ve got a long standing arrangement with a customer, let’s say like a credit card or a mortgage, what are you doing to check in with those clients on a regular basis to understand whether they are suffering pain, either short term or long term? And critically, will it affect some of the key payments they make, like your rent, light, your mortgage, the accounts will tax your energy bills, you know, and not end up prioritising a product, like a credit card over and above something that isn’t essential cost. I think a lot of this, again, comes back to how people are prioritising their resources or whether they are how they’re badging projects. You know, we we’ve talked about the rise of the whole ESG agenda, but it’s meant to be intertwined with everything else you’re doing. And some of those social value elements of it not only relates to the clients you’re serving, but the staff wellbeing that the people you’re dealing with, you know, and indeed, in my sector, the advice sector, you know, the well being of advisors were in many instances, they’re not able to offer any advice, because the consumer has got no money. You know, so the money and Pension Service has just issued a call for evidence around how do we deal with deficit budgets, because all of the advice providers and an increasingly debt collectors are contacting consumers, where they may have already done an income optimization exercise, to find they still got no money at the end of it, and something’s got to give. So we need to be more innovative in how we deal with that. And particularly for consumers, where they are likely to have multiple relationships with many creditors at different levels, that they don’t have to go through the same frustration over and over again. So data sharing, as I said, the tell us once concept is critical. So back

13:41
on consumer duty, I mean, it seems like I mean, you know, the warnings have been given, it’s now live, we just got to get our act together by the end of October in and so in terms of like, where to start? I mean, you talked a bit about doing that. I mean, what are the what are the what are the three steps, people have got to do like a point that the consumer duty champion, but then then do that? I think,

13:59
yeah, I think the champions are very early step. And I think we then got to go into a sort of a reality check, which is almost like a self assessment gap analysis. And part of that will align with how you used to do TCF audits, to look at, you know, what your view of the expected culture standards of the business are against the reality, and then relate that on a risk basis to the areas you need to prioritise. But the implementation plan has to stand quite detailed scrutiny, not only in terms of what you think it’s going to cost, because the FCA are very interested in that from their own impact assessment, but that there aren’t major gaps in it so that when this is reviewed three months in six months in, you suddenly find there’s a lot of scope creep, or a lot of things coming out of the woodwork that people didn’t anticipate at the beginning. So it needs to be quite a thorough exercise. And you can do that top down and bottom up problem bleed equally effectively, that meet somewhere in the middle. And it says right, we do have some serious challenges, particularly if they relate to infrastructure within the organisation. That suggests we don’t know how to deal effectively with some cohorts of customers, and may require, now reasonably incisive decision making to prioritise projects where there’s a very crowded agenda. So you and I have both done a lot of programme management work, it’s going to be looking at those dependencies. And so right, we’ve also got a Consumer Credit Act reform project going on. We’ve also got a programme going on around statutory debt repayment programmes, we’ve also got a programme going on about credit information, you know, market study, and those are going to be applicable to a lot of consumer credit firms at all levels. And, and what is, you know, the maximum that you can stress a senior manager out, and that, again, the regulator provided some early warnings at the beginning this year, targeted at compliance monitoring executives, and those looking after money laundering and financial crime. And part of that warning was not so much about their competency about the amount of bounce bandwidth they’ve got. So some of this is actually then looking at under the supervision of these key senior managers, how do you bring in trusted parties to mobilise activities alongside business as usual, and then make it business as usual, in due course,

16:36
it seems like there’s a lot to do for the next six weeks to get the plan as robust as possible, but then that’s really like, the start of the beginning, isn’t it? Because then you’ve got, then you’ve got to then implement it, it’s going to be a busy, busy year, that’s for sure.

16:49
Yeah, those discovery processes, you know, understanding this sort of as is environment, as we’ll discuss it, and looking at what the size of the swamp is, that needs to be drained is really quite important here. And indeed, for larger organisations, it’s going to be a fairly mammoth exercise, but bring that down to a, you know, small, medium sized firm, even that, when you look at it from a bandwidth point of view, what do you need in terms of focus on that to get it to the right level, which may relate then to things like investment, aligned to some of the challenges that are faced because a lot of firms at the moment will suffer as a consequence, the cost of living increases, they’re based around in the collections world on contingency fees, if you’re not collecting any money, you don’t earn any money? Similarly, lending is going to be under a lot of scrutiny in terms of who you are lending to and why. And can that be construed as predatory? You know, and exploiting people in difficult times? And that’s been a very interesting discussion that you’ve had recently with the credit unions.

17:54
Well, Kevin, it’s gonna be an interesting time. I know you’ve been doing quite a bit of work on it in the background in terms of like, the checklists and sort of helping around that, but it’s, it’s definitely gonna be a fascinating sort of six weeks to see how the readiness level and just making sure that people are prepared. It does seem to sound like we’ve got to get our skates on in terms of getting it done. I think just with the cost of living stuff going on the background is going to be evermore important. So. So Kevin, thanks very much for joining me. And no doubt we’ll we’ll chat again, there’ll be further updates. We’ll see how it evolves. as

18:25
ever. A pleasure, Chris.