In its most recent Consumer Duty Solutions Series Webinar, RegTech firm Aveni examined what a ‘data-driven’ regulator expects from a company in light of consumer duty.
According to Aveni, the consumer duty will be a ‘fundamental shift’ in supervision from person-centric to data-first. Following the webinar, the company outlined five key takeways from the session.
The first main takeaway was that current FCA supervision already takes data into account, however, new Consumer Duty regulation will provide firms with an opportunity to take ownership of data-driven innovation.
Aveni said, “The FCA will be pressing to understand how firms are achieving good consumer outcomes. They will look at management information and try to understand how senior leaders in these firms are challenging that the right outcomes are being delivered for customers. The regulator will try to see if firms are using all the data and information available to them to ensure that they are delivering these outcomes.”
In the event of crystalised risks like mis-selling or a situation where a supervisor needs to get involved to ask for a different outcome, Aveni claims the regulator will try to understand why and how those firms found it reasonable to approach these situations in the way they did.
The firm added, “The FCA is not expecting Consumer Duty to be a regulation that only sits in compliance. It’s keen that it becomes a culture that permeates throughout and at all levels of the organisation. One of the duty’s requirements is for firms to appoint a Consumer Duty champion. For smaller firms without a board, it should be someone who has a broad responsibility across the organisation.
“While smaller firms may not be expected to provide the same amount of data as bigger ones, there should be proportionality with how they deal with the different stages of the process and across the organisation.”
Another takeaway from the webinar was that Consumer Duty will see a step-change in the type and volume of information being requested from firms by the FCA.
According to Aveni, the volume of data businesses has access to now gives them more insight to customer changes and behaviour to inform product development and decisions – with a data strategy aligned to product development becoming much more important.
In order to determine what kind of data to gather, companies must understand that the goal is to demonstrate that the consumer is at the heart of what they are doing. Data that companies need to collect/share could include internal data, customer behaviour, external research and bespoke research, your own staff and throughout the distribution chain.
Another takeaway was that the big challenge for companies now is how they’re going to efficiently monitor the data over time and across multiple channels that will provide the efficacy of their products and services.
Aveni said, “Board members need to have agreed their consumer duty implementation plans by the end of October. They also have to demonstrate that the plans were given appropriate scrutiny. For most companies, these are just plans without an understanding of what needs to be done or how to execute them. Most firms are clear about the ‘what’ but it may be questionable how clear they are about the ‘how’.”
In addition, the firm said that most companies and their governance bodies are clear about their own journey from an internally-based set of customer scorecards. However, Aveni believes there is a need for a metric that is more externally justifiable.
The fourth takeaway was regarding the preparedness of boards to implement the consumer duty.
Aveni remarked, “Boards are clear on the Consumer Duty requirements, however, there is an underestimate of where firms are and where they need to be by the deadline in July 2023. They have to be realistic and understand that even when they have new scorecards and new measures in place, data is going to continue to emerge overtime.
“There are lots of issues that apply across things like consumer support, outcome, harm and they will continue to develop over the years. If you have a complex product, for example, where people don’t use the features until 5 years into the product, does that mean that it provides inappropriate value? Boards will also need to be able to argue their case appropriately with the FCA as it develops further.”
The final takeaway was that open banking and AI-driven speech automation technologies will be critical for companies to meet Consumer Duty data-requirements in an efficient and valuable way.
Aveni detailed, “With the evolution of data and technology, this new principle of the Consumer Duty allows firms to take ownership of the potential and better outcome the FCA is asking for. It provides an opportunity for businesses to take ownership of innovations and utilise technology and data in different ways. Firms need to take the requirements of the regulation on board with the help of technology and adapt some of the practices they already have in place, tweaking some and fundamentally changing others.
“The innovations around open banking and the data it enables people to get access to has accelerated data insight recently and should also be adopted. Through open banking technology, firms can access more data and gain insights into questions around affordability for example. As a lender or adviser, if you can pinpoint affordability from an investment perspective and offer good solutions and advice around that, it would be a welcome and focused opportunity for the Consumer Duty.”
Watch the full webinar replay here.
Copyright © 2022 RegTech Analyst
Copyright © 2018 RegTech Analyst
