Consumer Duty: Techniques to embed the right culture

When a regulatory change occurs, even one as fundamental as the Consumer Duty, it often takes time to bring everybody else on the journey with you. This is true at a firm level, but also at an individual level. 

Firm level 

Most regulated financial services firms have now grasped the duty, taken significant steps to comply with the requirements and are therefore (mostly) in compliance with it. I say ‘mostly’ because the short implementation timescale has left many with difficult prioritisation choices to make, however it is reasonable for those who have used a risk-based approach to consider themselves to be compliant. 

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However, it is clear to us that a minority of organisations have not understood the requirements. Whether this is due to actively ignoring them or believing themselves to be compliant without taking the steps to appraise themselves of the conditions laid down by the duty, the outcome is the same. Failure to do so could lead the senior managers to fall foul of regulatory action due to a breach of their duty of responsibility. DEPP 6.2.9E clearly states that senior managers must keep themselves up to date with relevant legislation and regulation. 

This over-confidence manifests itself in statements such as “we were already TCF compliant, therefore we already comply with the duty” and “the duty just means putting customers first.” 

Let’s challenge these. Your firm may well have met the TCF outcomes, and, in the best of cases, even produced good outcomes for customers, but it’s doubtful the firm would have a product approval procedure compliant with PRIN 2A.3 which assesses the target market, their characteristics and appropriately designed the product accordingly. The duty’s requirements are completely distinct from those set by TCF, going much further from an organisational standpoint. Furthermore, it’s unlikely that most firms were conducting value assessments or producing enough MI to meet the outcomes monitoring requirements let alone the board reporting. The duty, therefore, doesn’t only mean “putting customers first.”

Another example is customer communication. The previous standard was to be ‘clear, fair and not misleading’ (PRIN 7). It is now to ensure communications meet the information needs of the target market – a completely different standard, one that is subjective (based on the characteristics of the customer) rather than objective.

Individual level 

Many of the comments and themes mentioned in the section above may also be heard from individuals within organisations, often senior colleagues who have failed to move their mindset. 

Stuck in the pre-consumer duty culture this can often be identified where colleagues continually ‘push back’ against steps proposed to comply with the duty, arguing the need to take mitigating actions at each stage – why – because they are putting cost or income before customer experience. Work needs to be done with these individuals so they can see and accept the new consumer duty culture. 

A good test of whether the ethos and objectives of the duty have permeated all levels in your organisation is the content of reports to management. If they consist mostly of sales and performance data, with only a small section saved for customer outcomes and compliance they will not meet the FCA’s reporting expectations. Nor would such reports demonstrate a true commitment to customer outcomes. Balanced reporting, ideally 50/50, is a good indicator that individuals within an organisation have truly brought into the ethos of the duty, opposed to paying lip service. 

Where MI and reports are balanced, those reviewing will be spending a greater proportion of their time assessing customer outcomes, setting action points and developing strategies to improve service delivery.

What to do

As an industry we can’t realistically expect to be at our target operating model on day 1, as we have a number of issues to tackle and people to bring with us. There are a multitude of methods which can be used to embed change with change resistant individuals, these include:

1. Plant the seed: you always need a starting point, in this case it is explaining the changes in a way which tells the story, using business storytelling skills, in a way they can easily understand. Training is your usual method, whether our online e-learning or face to face training: Consumer Duty Compliance Resources | RB Compliance Consultancy

2. Bring others with you: create an influencing plan by noting the key individuals in your organisation that you need to buy into the duty, then identify those who are key influencers of those individuals. Working on these people first, getting their buy in to your message, is possibly the single most effective method. 

3. Give a heads up: If you’re delivering advice or messages in a meeting, especially if they include messages you know the recipient doesn’t want to hear or will be resistant to, don’t allow them to go in cold. Build time into your schedules so you can give them a brief overview (or warning) of what you will say. 

4. Consider your answers: there are several useful influencing models such as Kotter’s 8 steps and the Kubler-Ross Change curve. Both require you to identify the likely challenges and questions that will come your way and answer them swiftly.