A report released last week by the FCA analysed how around 60 of the UK’s biggest financial services groups are doing in their preparations for the Consumer Duty’s implementation in July 2023. The news was dire. The FCA identified several failures in how banks, insurers and asset managers are preparing for new Duty rules, warning some will “struggle” to meet the deadline for implementation, and should expect to face the consequences.
In a recent piece of Board Intelligence research on reporting under the Consumer Duty Act, 72% of people didn’t know if their reporting stacked up against the Duty, and 26% of people felt their reporting was not yet fit for purpose. That view is now very publicly echoed by the FCA and, given they have been clear that their June deadline will not move, time is running out.
So where should you start? The report showed there are a few things that have rattled the regulators. In one case, the FCA said that board minutes had showed that the plan to implement Consumer Duty “was approved without discussion”. In another, there was “no evidence of engagement” with the firm’s Chair or other non-executive directors. Neither of these pass muster with the regulators, and they all point to a failure in companies’ reporting, with the board not getting the information they need to have an informed, compliant discussion. This is serious, as the FCA has now been crystal clear that firms need to further develop their approach on how they will engage with the board and executive post-implementation to provide ongoing assurance that they are meeting expectations under the Duty.
There were also other areas of weakness highlighted; areas that we believe boards and management teams should be paying immediate attention to. These included:
- Prioritisation. Firms were felt to have not properly prioritised the work they need to undertake between now and Julys, as well as other duty-related operational issues, including assigning tasks to staff “on top of their existing roles”.
- Culture. Implementation of the Consumer Duty demands “significant change” in culture but some plans were “lacking in detail” on how an appropriate culture would be promoted, and “gave no evidence of a consideration” of whether the current environment was fit for purpose.
- Compliance. Firms were felt to be complacent in how they planned to gather data for compliance with the Duty, as well as how their previous initiatives in customer service had prepared them for the Duty.
It wasn’t all negative however – the FCA gave some suggestions as to what they view to be best practice. These included:
- One-to-one deep dive sessions with board members on plan deliverables, as well as whole board training sessions.
- Clear reporting arrangements for ongoing scrutiny of firms’ implementation work by the board , executive and their audit and risk functions. (We would expect an update for each time the board meet between now and June).
- Making the Duty a standing agenda item at key governance forums.
- The appointment of two duty champions where firms had diverse legal entity structures (to ensure the Duty was reported on and discussed in a meaningful way).
- Establishing central coordinating forums to drive consistency in interpreting the Duty across different business functions, and for coordinating required changes to systems and technology across workstreams.
The FCA have very publicly said that they “want to see senior leaders in firms driving the changes needed to meet the Duty standard” so Board Intelligence would expect to see customer reporting at or near the top of every board’s agenda right now. Banks need to stop thinking like banks and start thinking like retailers in the prominence, depth and prioritisation of customer reporting through the first line. That means a wholesale change in the way the board is reported to, and the plan deliverables are just the start. Boards need to step up and start taking the Consumer Duty more seriously, or they risk the wrath of the FCA. Time is running out.
Does your reporting stack up under the Duty? There are a few ways Board Intelligence can help you find out:
- The Consumer Duty module of our reporting platform Lucia sets out a series of customer reporting frameworks (from regular Customer Satisfaction reporting through to product appropriateness approvals) to give you the breadth and depth of customer reporting needed. Get in touch to request a demo.
- We can facilitate a training session with your board or your governance team on best practice customer reporting. Get in touch here to find out more.