Embedding the Consumer Duty – how to shift from compliance to continuous improvement
Stu Charlton
06 Sep 2023
- Financial Services
The win-win circle: what the FCA want you to know
The Consumer Duty implementation deadline has passed. But the FCA isn’t seeing this as a one-off compliance exercise: “the duty should be at the heart of everything that firms do going forward”.
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Lauren Bailey
Marketing Manager
In our latest webinar, ‘Building a Consumer Duty Culture – some simple steps’, we were joined by Ed Smith, Head of Department in the Competition Division at the FCA and Jonti Dalal-Small, Behavioural Science Lead at Sopra Steria.
The purpose of the session was to look at how firms can transition from a tick-box approach to compliance, to a culture of continuous improvement, and why it’s important to do so. Specifically, we focused on the outer ring of our Consumer Duty model – ‘Build a culture’.
Three steps to embedding the Consumer Duty
To kick off the webinar, Ed discussed the FCA’s point of view when it comes to the Consumer Duty and covered six key points:
- The duty is a culture shift
- Culture starts with leadership and purpose
- Incentivise and train your team the right way
- Bring it in at board level
- Building trust drives commercial growth
- It’s all about understanding your customers
Over the last 18 months, firms have been rushing to meet the Consumer Duty deadline, but for Ed Smith and the FCA, it’s important that we take a step back and think about what the Duty is really driving at.
Ed stressed that this is not a one shot compliance exercise game.
The duty should be at the heart of everything that firms do going forward
He described it as an embedding exercise and a journey of continuous improvement. The common thread the FCA are interested in above all else in their work, is reducing harm to consumers and ensuring that firms deliver good outcomes for consumers.
In Ed’s experience, the firms that do the right thing and show leadership welcome the kind of action that the duty embeds. It tackles poor practice by the competitors who drive down standards and trust amongst consumers.
He went on to describe how many firms realise that if they get the implementation of the duty right, they deepen their trust with customers and they deliver better outcomes for people, for themselves, and for the business. We observed this in our work for The Co-operative Bank. We increased transparency, and in turn trust, which led to results such as a 90% increase in credit card applications, a 325% increase in current account page visits, NPS increase of +5.9 (21 points above expectation) and winning the ‘Loving Your Customer’ award at the UK Financial Services Experience Awards.
As Ed said, the FCA “wants consumers to buy insurance, take out mortgages, borrow credit sensibly and invest in the future. But they do so knowing that firms are providing them with the right products and supporting them to meet their needs”.
He believes that there’s a win, win circle here and thinks that firms recognise that too.
1. The duty is a culture shift
The first point that Ed covered is that the duty is a culture shift.
He started by reiterating that it might have felt a bit like a one shot tick box compliance exercise when firms were trying to meet the milestones and get things in place for day one.
But actually…
It’s a much longer game than that and it’s about fundamentally changing the mindsets of firms and changing the culture in firms
Ed mentioned that, at the FCA, “we bang the drum a lot about culture, but it’s because culture is a key driver of consumer outcomes and good consumer outcomes”. And described how, when firms have a healthy culture aligned with their customers interests, that flows through the business and can act as a powerful safeguard against harm to consumers.
Ed then went on to list some questions that, from a long term perspective, firms should be asking themselves in relation to the duty:
- Does your purpose and culture align with your obligations under the duty?
- Does it support the delivery of good outcomes to consumers?
- Is the duty being considered in all relevant discussions such as strategy, remuneration and risk?
- Have you made sure your incentive structures drive good outcomes for customers?
- Are you prioritising good outcomes for customers in a changing external environment?
- When you talk about strategy, for example, are you thinking about one of the key things that we need to get right for those good customer outcomes?
2. Culture starts with leadership and purpose
To embed consumer duty within your organisation it requires a culture shift. Ed stated that “leaders set the tone from the top and they shape culture through the way that they manage staff behaviour across the firm”. He stressed that it really needs to be integral for the leaders to set those standards among the staff, encouraging them to speak up, in particular.
Expanding on his point, Ed said that speak up culture is a really important part of that leadership. So when staff see consumers getting poor outcomes or they feel that there might be a risk of it, they’ve got strong incentives to speak up and that they are genuinely listened to within the organisation.
3. Incentivise and train your team the right way
Ed described how culture is firstly leadership and purpose, but that it’s also about people policies. He believes that “setting the right incentives is really crucial to establishing the right culture amongst staff” and explained how at worst, incentives can drive and even reinforce bad behaviour.
The FCA have seen examples of this in the past in consumer credit, where sales based incentives and volumes have led to products being sold inappropriately, creating a risk of harm to consumers. Ed explained how this problem of incentives can be magnified if you’re also setting incentives on managers to hit sales targets as they get magnified through the organisation.
He then told us how the FCA wants firms to look at incentives at all levels of the organisation to make sure that they’re properly structured in a way that delivers good consumer outcomes.
Ed mentioned that there have been excellent examples of firms rolling out Consumer Duty training to staff. Furthermore, they’ve also seen firms setting out their plans to explain their purpose and values in a way that’s been aligned to the Consumer Duty and to delivering good consumer outcomes.
One of the things we’ve seen at cxpartners when firms are trying to create change is that it’s most effective when done alongside internal teams and with those affected. By empowering your teams to get involved in change, organisations are far more likely to make a long lasting difference.
To help you get started, we’ve created a 90 minute workshop for firms to run with their teams. We’ve designed this workshop so that you can run it yourself. However if you’d like independent facilitation or support to run behavioural experiments then drop us a line.
4. Bring it in at board level
The final way in which Ed thinks firms should embed the Consumer Duty into culture is through their approach to governance and oversight processes.
He mentioned that, in order to meet the various deadlines, a lot of the Consumer Duty work had been targeted at the product governance level. And also at the product oversight committees that firms use to set their strategies and ensure products are still being used appropriately, which he emphasised is really important.
But even now that the July deadline has passed, Ed goes on to say it’s crucial that those product committees and product governance processes are “reviewing products on a regular basis to ensure that throughout the life cycle of those products, they are continuing to meet consumer needs and giving consumers good outcomes”.
In addition to this, Ed explained how the Consumer Duty needs to be part of the risk and audit functions within larger firms, in particular, so that they understand the risks and how they’re being managed through the business.
But above all else, it needs to be considered at the board level.
Ed emphasised the importance of boards being the champion of the Consumer Duty and how the FCA wants firms to appoint a board level representative for it. This “reflects this tone from the top that boards are ultimately accountable. We expect them to be embedding and overseeing the embedding of the duty across the organisation”.
Ed explained that the board needs to review this, annually at a minimum, and they need to make changes to products where necessary. So “boards play a really central role in establishing that culture and that rhythm of reviewing the duty over time”.
And while there is a lot to keep in mind, Ed ends on a positive note by saying that the FCA have seen some really good practices and robust governance frameworks that firms have set out. He’s found that there are a lot of boards that have been thinking quite deeply about how they assess the duty and the implementation, and particularly how they push towards a Consumer Duty focused culture.
5. Building trust drives commercial growth
Ed went on to state that the Consumer Duty drives commercial growth for firms. Building trust with customers has shown to improve business growth, as well as achieving consumer outcomes. Essentially, complying with the duty is a win-win for firms.
And we’ve said this before. In our recent blog, ‘The trust crisis spells opportunity for financial services’, we dive into the complex topic of trust and discuss how trust makes your business resilient, particularly during turbulent times. But it’s not just theory.
This was the case in 2018 when the FCA introduced the Insurance Distribution Directive (IDD) and the RAC needed to demonstrate that their breakdown cover was being sold appropriately.
They came to cxpartners because of our financial service expertise, and asked us to design a sales journey that was both customer-focused and compliant. Our customer research gave the RAC the insights and rationale to launch a notably different journey, satisfying both commercial and compliance teams, and delivering better results.
Through an exemplary focus on regulatory compliance and customer outcomes, cxpartners helped us achieve improvements in commercial performance.
Over just 6 weeks, we designed a journey that demonstrably improved consumer understanding and delivered an +8% increase in revenue. Better for customers and for the business.
6. It’s all about understanding your customers
The final point that Ed conveyed in the session was that it’s easy to get caught up in the details and the milestones of the Consumer Duty and the particular outcomes that the FCA requires firms to focus on. But ultimately, “it’s about understanding your customers, how they use your products and how you can best help them to achieve their financial goals and avoid harm”.
In our experience, user research is the key to this. In particular, qualitative research. It shines a light on the blindspots left behind from quantitative data and reveals insights into customers’ perspectives, motivations, or vulnerabilities.
Qualitative user research is a powerful way to build a clear connection between the people that run businesses and the people that they serve.
Here’s how one CEO reacted after watching some research that we led:
It’s been eye opening to see the end result and acknowledge how difficult we sometimes make things for our customers. […] Seeing that in one place creates a sense of urgency in our need to simplify things for our customers.
Our experience providing independent, expert, qualitative customer research can also help to support your discussions with the FCA. Weʼll assess your services through the eyes of your customers to find out if you have really “put yourselves in your customersʼ shoes”.
So, what next?
Ed mentioned in the webinar that implementation to date has been focused – rightly so – on compliance products and meeting the milestones, but he stressed that it’s important to understand that this is not a one off compliance exercise. It’s not a compliance tick box.
And now that the deadline has passed, FS firms are probably asking themselves: Have we done enough?
An independent, customer-led evaluation of your customer journeys will provide fresh eyes, impartial answers, and credible rationale to bring to your conversations with the regulator.
The Consumer Duty’s guiding premise is that firms should put themselves in their customers’ shoes. Customer-centred assurance is a great fit, because it uses primary qualitative customer research.
So, have you done enough? Customer-centred assurance provides answers. Get in touch with Stuart Tayler, our Practice Director, at stuart.tayler@cxpartners.co.uk to book an independent, impartial evaluation of your customer journeys and services, to support your conversations with the FCA.
