Consumer Duty remains high on the regulatory agenda. Here’s our guide to the best way to design and operate effective governance controls.
The FCA’s latest business plan identifies specific provisions that consider the way firms approach positive consumer outcomes in the context of their authorisation and supervision.
The implementation date for new and existing open products is 31 July. With this in mind we have reviewed the FCA’s updated guidance and provide our insight on the important focus areas for firms.
Focus area: Implementation project
What should firms do?
- Ensure implementation projects are nearing completion, having identified and prioritised the riskiest products or most vulnerable consumers
- Document and prioritise a record of products and associated value measures reflecting the risk and consumer vulnerability
- Complete consumer journey mapping and consider the overall culture, training and processes needed to support the delivery of outcomes
- Map distribution chains and third party engagements to understand how consumers interact with products and firms.
Assurance activities
- Review the governance, oversight and monitoring of implementation activities, schedules, risk assessments and prioritisation to make sure management is focused on the most vulnerable consumers and products
- Review implementation project delivery and outcomes to check that objectives have been met and Consumer Duty has been embedded across the firm
- Review first and second line training, metrics and reporting to ensure that existing and new metrics have been developed and are being used when considering products, services and consumer engagement
- Review the assessment of product distributors across consumer channels. Ensure the assessment reflects the role of parties throughout the consumer and product life cycle.
Focus area: Governance and oversight
What should firms do?
- Establish clear roles and responsibilities for Consumer Duty across SM&CR / governance structures and allocate a Consumer Champion
- Oversee and monitor plans to implement and embed Consumer Duty in firm operations
- Embed consumer outcomes in decision-making, commercial and operational forums, monitoring and metrics
- Identify and align product / types of product ownership, building on pricing product governance work completed previously
- Engage firm, insurer and distribution chain stakeholders to ensure a consistent and co-ordinated approach across product delivery and service.
Assurance activities
- Review new or enhanced roles / responsibilities across SM&CR positions to ensure that Consumer Duty remains a high priority for governance processes
- Review the governance structure and reporting channels to ensure effective oversight of Consumer Duty, sufficient airtime within relevant committees and incorporation into risk, culture and strategic discussions
- Review the oversight, engagement and challenge of counterparties across the distribution chain to ensure that the Consumer Duty is embedding
- Review the pricing and product attestations and assessments completed by relevant forums / committees to ensure appropriate ownership and oversight of products.
Focus area: Management and operations
What should firms do?
- Review and assess current firm culture and seek to embed good consumer outcomes as part of the firm’s culture
- Map and understand the specific consumer touchpoints within product distribution / consumer journeys across the life cycle of each product
- Assess the impact of continuing or discontinuing provision of products or services to vulnerable consumers
- Review and align reward and/or remuneration structures to reflect consumer impacts and the objectives of the Consumer Duty
- Consider the financial and non-financial benefits and costs associated with each product / type of product
- Consider the variation between absolute and relative value provided by products.
Assurance activities
- Review the approach, focus and metrics used to measure individual, divisional and firm performance to ensure they reflect consumer interests and measure outcomes
- Review the mapping and analysis of consumer journeys and how these support a consumer-focused approach, in line with the nature of the product / service
- Review the remuneration and reward objectives to ensure they promote a consumer-focused culture and operating environment
- Review the value metrics created for products and assess the balance between financial and non-financial benefits and costs considered through value assessments and the impact on absolute or relative value.
Focus area: Processes, systems and controls
What should firms do?
- When mapping consumer journeys, review and update processes, systems and controls to align with consumer requirements
- Review and assess current systems, product and performance metrics to ensure they are configured to capture new / amended data logged against consumer outcomes
- Review existing underwriting, claims and complaints processes and decide whether enhancements or changes are needed to implement new authorisations or reviews through product life cycles
- Review system change management projects and enhancements for conflicting or complimentary request and prioritise coordination of consumer focuses enhancements
- Review and update existing procedures and processes to capture instances of poor consumer outcomes.
Assurance activities
- Review the design and operating effectiveness of new or amended controls within placement, support and claims processes
- Provide assurance that firms have defined and enabled appropriate data fields to capture relevant and timely consumer focused data
- Review change management programmes for system updates to ensure appropriate consumer impact assessment and analysis
- Review the retention of personal consumers to ensure this is done in compliance with established internal processes and that relevant GDPR controls are working effectively
- Review formal process documentation to ensure this reflects processes accurately and is up to date.
Focus area: Third parties
What should firms do?
- Identify all key third parties included in consumer mapping documentation, with clear roles, responsibilities and accountabilities agreed and formalised
- Establish new, or enhance existing, governance and oversight in third party SLAs to ensure consistent and effective adherence to Consumer Duty requirements
- Develop systems and processes so that third parties are clear on the reportable data and metrics needed to demonstrate adherence to the Consumer Duty
- Consider the impact on consumers in the event of loss of a third party, across the product life cycle.
Assurance activities
- Review and confirm the identification of third parties within consumer journeys, provide assurance that the third parties are correctly identified and categorised, and that clear roles and responsibilities have been agreed
- Review third party SLAs and other commercial agreements so that these are consistent, where possible, and reflect requirements to meet Consumer Duty obligations. Provide assurance that respective roles and liabilities are clearly established
- Review the data and reporting requirements set by the firm to ensure these remain clear, consistent and that they meet Consumer Duty requirements across all consumer touchpoints undertaken by third parties
- Review third party reliance and impact assessments to ensure that sufficient processes are in place to meet consumer requirements in the loss of a critical third party. Placement, processing, claims and remediation are key focuses.
Focus area: Data strategies
What should firms do?
- Assess current data capture and reporting to identify known gaps in your current suite, or aim to centralise and standardise potentially disparate reporting
- Develop new, or enhance existing, data capture fields and reporting requirements reflecting Consumer Duty expectations
- Ensure that data is captured consistently across groups of products, customers and distribution channels to enable analysis and comparison
- Consider how you will monitor outcomes across different groups of customers, including vulnerable customers.
Assurance activities
- Benchmark specific data and reporting metrics against industry-observed practices so that they are consistent and reflect the Consumer Duty requirements
- Review existing systems and processes to ensure that data is captured, recorded, analysed and reported consistently and reflects a consumer focus
- Review the development of new or additional data fields or reporting that provide insight on consumer journeys, including analysis of time taken, click / tap journeys and third party handoffs.
Next steps
Many aspects of Consumer Duty are not new for the insurance industry and build on previous initiatives. But firms should still put in considerable effort to fully embed Consumer Duty and deliver the cultural change the FCA is looking for.
After the 2023 deadline, firms are likely to receive data and oversight requests from the FCA. This is part of the regulator’s process to validate efforts across the sector and identify poor performing firms, potential consumer detriment or other areas of concern.
For further insight, advice or specialist assurance support with your consumer portfolio, please contact Jessica Wills in our Governance, Risk & Control Assurance team.
