Putting things right after they have gone wrong takes a lot of time and effort. Doing the right thing in the first place is less costly in the long run, so discussed new Financial Conduct Authority joint executive director of enforcement and market oversight Therese Chambers earlier this month.
Chambers emphasised that doing the right thing is at the heart of the Consumer Duty and “a gamechanger” which will see a significant raising of the standard of conduct expected of firms and individuals.
As we fast approach the Duty deadline of 31 July, there are a number of FCA themes running in tandem where we think these increased expectations will manifest themselves.
One clear example is the Borrowers in financial difficulty (BiFD) project, a review which started well over 12 months ago but, given the continued rise of interest rates and cost-of-living crisis, looks set to remain a major focus of the FCA’s attention.
The FCA is getting impatient at the lack of progress and the continued need to challenge firms
It is also the link into customer vulnerability which remains a core regulatory priority.
The FCA found the number of people struggling to meet bills and credit repayments has risen by 40% to 10.9 million since May 2022.
The number of adults who missed bills or loan payments in at least three of the last six months also went up by 1.4 million in the same period, from 4.2 million to 5.6 million.
At the same time, the FCA asked firms to pay up to £47m to borrowers in financial difficulty that had been treated unfairly by lenders.
As the cost-of-living crisis continues, this is likely to become a larger problem. Identifying clients in arrears and at risk of difficulty and helping them to avoid challenges is critical.
The reason for mentioning this guide from over 15 years ago is to illustrate how long the regulators have been focused on outcomes
These issues are accentuated by aspects of vulnerability over and above financial vulnerability and this is where, with the requirements of the Duty, expectations on improving the standard of conduct have risen significantly.
This is not just a BiFD issue. Indeed, there is a read across all financial services sectors in the way customers are being treated.
Interestingly, in the FCA’s guidance document FG 21/1 on customer vulnerability, there is reference to Treating Customers Fairly and the need for quality management information to be able to evidence a firm is meeting the requirement of Principle 6, “Customers’ interests: A firm must pay due regard to the interests of its customers and treat them fairly”.
The guidance then links to a Financial Services Authority document from 2007, Treating customers fairly – guide to management information.
Of course, we are getting a new Principle 12 – “A Firm must act to deliver good outcomes for retail customers”. However, the reason for mentioning this guide from over 15 years ago is to illustrate how long the regulators have been focused on outcomes.
The document references five steps to take with your management information (MI):
- Seen – an appropriate level of management receives, understands and reviews the MI
- Challenged – anomalous or unexpected results are challenged
- Analysed and monitored – the right messages and conclusions are drawn from the data
- Acted on – where appropriate, actions are taken to remedy the situation, to investigate further and to follow up on those actions
- Recorded – records are made of what is done and information is subsequently gathered to enable the success of those actions to be assessed
These five steps are as relevant today as they were in 2007, although we would expect the thinking around them to have matured.
Where some firms can let themselves down is not the fact they don’t have actual management information (such as business persistence, file review outputs and complaint root cause analysis), it is the rigour of the challenge and analysis of the information, or a failure to act promptly when an issue is identified and record what has been done and the rationale behind the decisions made.
As the cost-of-living crisis continues, this is likely to become a larger problem
The FCA’s mantra on standards is understandable given some of the poor conduct we have seen across most financial services sectors over the last 16 years, and the regulator recognises it needs to act more quickly.
But given some recent interactions as a result of regulatory investigations, the FCA is getting impatient at the lack of progress and the continued need to challenge firms about how they are able to evidence good customer outcomes.
The message from Chambers around doing the right thing first is likely to be a key theme with added enthusiasm post-July.
Simon Collins, managing director, regulatory, at Konexo
