Paul Gill, Chief Risk Officer, Mortgage Advice Bureau

Below is an insight into what can be expected from Paul’s session at Risk Evolve 2024.

The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.

1.) How can organizations effectively benchmark progress and embed best practices for compliance in the context of consumer duty?

At this stage of the embedding journey of the consumer duty requirements it can be difficult to benchmark progress and best practice as it is early days post implementation, and there are no clear ‘right answers’ or ‘one size fits all’, even for firms in the same sector. Together with this, there has been only a modest amount of guidance from the FCA in terms of regulatory action or formal papers – there are speeches and webinars, though, which can be a great source of information and ‘direction of travel’ from the FCA in their own on-going journey into the new world of consumer duty. As a result of this, a firm’s best option is to first be confident that the work it is doing on Consumer Duty is right for its own business and model, and fits with the cultural and strategic direction of the firm. In other word, focus internally and satisfy yourself that you are doing the right thing for your customers. Once you are stable and satisfied in your own approach, it would be a useful exercise to map your activities and progress against similar businesses models in similar sectors, and there are several ways of achieving this. These are some options available to firms:

1. External assurance review – this can help with direct benchmarking if the external provider reviews and assesses your firm’s progress. It is going to be more helpful if you choose a supplier who also engages with peer group businesses to help make sure their reference point is consistent.
2. External consulting support – whilst maybe less helpful than the independent review approach, this option provides a firm with an independent view as to on-going activity and the development of ideas. Again, choose a supplier who engages with peer group businesses, and an individual who is sufficiently senior and experienced to actually help bring new ideas and independent thinking to the party.
3. Participate in trade association working groups – whatever sector your firm operates in, it is very likely there is a trade association in place that support your sector – if there isn’t, try to find a connected sector that has a trade association and link in with them. Trade associations are a fantastic source of benchmarking on a more informal and confidential basis, where shared best practice across peer group firms can be confidentially shared. Most trade associations work under ‘Chatham House Rules’, which means that whilst whatever is shared within the group can be used by those engaged in the discussion, they will not reveal the source of the information – so it is a safe space to share and engage with like-minded professionals. Additionally, trade association representatives generally have strong relationships with regulatory bodies, which may help give them some further insight into the FCA thinking at the time.
4. FCA webinars – any information directly from the source is a key resource and can help clarify areas of confusion or those that potentially lack clarity. The FCA generally holds a range of webinars on many subjects, including Consumer Duty, and helps participants to understand their current thinking and activities.
5. Professional services firm breakfast/webinars – Similarly with trade associations, professional services firms tend to have good relationships and engagement with regulators, and they will see the activities of those firms with which they are working. So, whilst not as helpful as having the external assurance review, or the direct consulting support, the breakfast/webinar activity is always a good place to engage with specialists from a wide range of firms and sectors – a great way to hear from a wide selection of ideas.

2.) In your opinion how can the progress and evolution of consumer duty compliance be assessed one year after its introduction?

As noted above, this is a really challenging activity as the key question could be ‘what does good look like?’ without a tremendous amount of guidance for firms to know what that is. One great starting point for firms is to have a very clearly defined position as to ‘what does good look like for your firm’. This means that firms will need to document the start, middle and end of their process of engagement, change and embedding of the duty requirements – in other words, write your story and journey towards embedding. To do this you can look back to where you started – what is different now? Does it match where you wanted to get to?  – and  use people from within the business to challenge and question the progress made, especially the governing body.

One key deliverable of the Consumer Duty expectations is a report that is presented to a firm’s governing body that enables the governing body to confirm it believes the firm meets the Consumer Duty requirements. This report should be approved by the governing body within a year after the implementation date. The preparation of this report will help your firm to really consider how well progress has been made since 31 July 2023. The report ought to include a summary of the overall position, relevant management information, specific explanations as to how good outcomes are being evidenced within the four outcomes, evidence of alignment to the culture of the organisation and how that enables good outcomes to be achieved. There needs to be some thought put to the form, design, and content of the report, together with the governance processes in the business.

3.) What are the challenges of embedding consumer duty requirements into BAU, operations and operational risk frameworks?

Operational risk frameworks are generally focussed on process and controls that directly impact the business, whereas Consumer Duty needs to be thought of as more than process, focussing on the outcomes experienced by the consumer. This means the controls testing element of operational risk management and operations may need to be re-focussed in some cases, so that they become one of your key methods of identifying success. The operational risk framework can be used to answer the question – ‘is the process working as intended and can you evidence the outcomes are as desired and designed?’

Having consumers at the centre of your culture and strategy is fundamental – it needs to be part of ‘how you do business’, which means it should be in your cultural make up – relying on operation processes and the risk framework does not help you as much as having the right culture in place.

4.) How can organizations ensure that consumer duty becomes an integral part of daily business practices?

As noted above, culture is key – one way of thinking about it perhaps by trying not to talk about consumer duty but focus on your culture, your way of doing business, your beliefs, and your obligations to your customers. Once that is in place, you can focus on culture-defining objectives in each employee’s annual deliverables, develop business goals that support creating the right outcomes for customers, and use the MI to evidence how you meet your obligations, ensuring it is reviewed by the senior team.

5.) What proactive measures can organizations take to stay ahead of regulatory changes and ensure ongoing compliance with consumer duty?

It again comes back to the culture of your firm – if by nature you and all your employees do the right thing first time, show integrity and understand who your customer is, then it is a lot easier to both meet and be ready for future regulatory changes. Use the same approach as covered in point 1 above by engaging externally, engaging with peer groups, being open to challenge and discussion, and engaging in professional practice in your firm’s activities.