As Consumer Duty celebrates its third anniversary, there’s no question that expectations are shifting. The intense focus on implementation that defined the early years of the regulation has given way to a more fundamental question and expectation: can firms demonstrate that they consistently deliver good customer outcomes?
The answer depends on how well firms can identify, monitor, support and report on customers in vulnerable circumstances.
The developments of the past year all point in the same direction. Regulatory expectations are becoming clearer, scrutiny is increasing and firms are being challenged not only on the processes they have put in place, but on the evidence that those processes make a measurable difference. Consumer Duty is entering a new phase of maturity, and nowhere is that more apparent than in customer vulnerability management.
Clearer expectations
One of the most significant developments this year has been the clarity around customer vulnerability data. The recent joint statement from the ICO and FCA definitively answered one of the biggest questions that had lingered since Consumer Duty was first introduced: can firms collect customer vulnerability data without falling foul of data protection laws? The response was not only a emphatic yes, but underpinned by a call to actively share vulnerability data to help support good outcomes.
Excellent guidance on data privacy from the Chartered Insurance Institute (CII) followed this, which built on its previous paper on customer vulnerability management. Together, these foundational publications have given firms a clear roadmap for turning both the principles of Consumer Duty and the call from the regulators into practical actions. They also set the benchmark for what good looks like when it comes IT systems, processes and data infrastructure – to not just identify and classify, but also to monitor, support and report on customer vulnerabilities and outcomes.
A key element of the guidance has been the need to adopt proactive measures of identifying vulnerable customers, rather than being purely reactive – mirroring expectations set out by the FCA. While many firms have built processes around customers’ vulnerabilities being visible or volunteered, such reactive measures leave most vulnerable customers unidentified and unsupported. The reality is that the regulator wants to see firms go further to understand the full extent of vulnerabilities within their customer base and the outcomes these customers receive.
Increasing scrutiny
There’s no question this next phase of Consumer Duty is defined by one thing: evidence.
The rise in whistleblowing reports relating to Consumer Duty demonstrates that accountability is no longer driven solely by the regulator. Firms are recognising when standards are not being met across the distribution chain and are raising concerns where they believe customers had received poor outcomes. As intended, Consumer Duty has created an environment of self-policing – in which firms are accountable not only for their own conduct, but that of those with whom they work.
Combined with more visible regulatory enforcement – as highlighted in the FCA’s Enforcement Watch 2 – this is clear proof of Consumer Duty’s shift into organisational culture rather, than existing purely as a compliance exercise.
The latest FCA review into firms’ approaches to outcomes monitoring reinforces that message. Firms are now expected to demonstrate how they measure success, identify poor outcomes and use management information to continuously improve customer experiences.
Repackaging data or collecting it in any old form or fashion is simply not enough. Firms must be able to show that they understand what the data is telling them and, crucially, that they are acting upon it.
Achieving this requires more than good governance. It requires robust technology and processes capable of generating accurate, meaningful management information. Together, these provide firms with the evidence needed to monitor trends, identify emerging risks, demonstrate compliance and continually refine the products, services and support they provide.
Personalisation
For many firms, there’s no doubt that Consumer Duty has been perceived as just another regulatory obligation, ignoring the commercial gain opportunity
Three years in, there is an opportunity to view things differently.
Those firms investing in robust customer vulnerability management don’t just reduce regulatory risk. By embedding a digital approach and generating good quality data – firms can improve operational efficiency, remove unnecessary subjectivity, strengthen governance and make better-informed business decisions.
Most importantly, they build a digital understanding of their customers – one which enables firms to deliver more personalised support, strengthen trust and respond more effectively as customers’ circumstances change This digital personalised approach has the added advantage of ensuring continuity, between broker and manufacturer, and is key to succession planning within firms.
We have seen real-world examples of this personalisation approach – leveraging the insights gathered for commercial gain. For these firms, compliance is simply the by-product of doing the right thing well, rather than being the objective.
The firms that will succeed over the next three years will be those which embrace this new phase of maturity – embedding digital personalised customer vulnerability management, supported by robust technology, reliable data and well-designed processes, not just to demonstrate compliance, but to genuinely increase trust and continuously improve customer outcomes.
Andrew Gething is managing director of MorganAsh
