Technology is critical to ensure Consumer Duty isn’t ‘once and done’

Firms hoping that the FCA would not enforce Consumer Duty will certainly be disappointed, especially following ‘Dear CEO’ letters, reports and supervisory action to address clear shortcomings. Rather than kicking the can down the road, the regulator is knocking on the door of firms that are either complacent or simply ill-equipped to deliver the change it wants to see. 

That change is a visible and enduring shift – something that becomes a fundamental and ongoing part of a business’s operations, procedures and importantly, its culture. This was reinforced recently by Nisha Arora, the FCA’s director of cross-cutting policy and strategy, who stressed that the regulation should not be treated as a “once and done” event. 

Improving standards, increasing trust and delivering good consumer outcomes – particularly for those with vulnerable characteristics – is still very much the target for all firms. With annual board reports on the horizon, and news of a regulator on the warpath, more firms are understanding the critical role technology and good data can play in meeting these requirements.

Identifying consumer vulnerability

Most recently, stockbroking and wealth management firms found themselves in the FCA’s crosshairs. When asked, many of these firms reported few or even zero vulnerable customers – even though everyone is vulnerable at some point in their lives. In fact, the FCA’s own Financial Lives survey identified that around 50 per cent of UK adults are vulnerable in some way. 

Unfortunately, the view that there is “nothing to see here” is one we have heard from a number of firms across different sectors. However, rather than having a magically resilient customer base, the common denominator is a lack of quality data. They are simply not assessing customers or recording consumer vulnerability in any consistent manner. A far more robust approach is for firms to adopt an independent assessment tool, which can measure consumer vulnerability both objectively and consistently – and then track this over time.

The MorganAsh Resilience System (MARS) for example, uses vulnerability assessments to generate a Resilience Rating – which is similar to a credit score. Rather than proportions in the single digits, firms using this approach are generating superior data and reporting consumer vulnerability in line with the FCA’s findings. 

Monitoring outcomes

This deeper view then enables firms to determine whether the outcomes experienced by the vulnerable are, at the least, no worse than those received by the resilient. 

After all, recent research by the University of Bristol found that disabled consumers are receiving a far worse experience with financial services than those who are not. The FCA’s own data supports this view, with vulnerable adults more likely to report a lack of help and support.

The research conducted by the University of Bristol highlighted that those most impacted were people with conditions that are not visible or obvious, such as learning difficulties, mental health problems and memory-related conditions. This makes an already arduous task much harder. Not only are firms required to identify and monitor vulnerability – tracking any changes to ensure product remains suitable – but firms must do this for all manners of consumer vulnerability, disability and protected characteristics. These include age, gender, religion and sexual orientation – and, under both the Equalities Act and Consumer Duty, must be reported at firm level.

In her speech, Nisha Arora said that the firms not meeting the FCA’s expectations are often those that are just “repackaging existing data”, without thinking seriously about the information needed to really understand consumer outcomes. Technology can play a significant role in mitigating this task, helping firms identify vulnerability – and collect protected characteristics data as part of the same assessment – ready to report on, annually at the very least.

Reporting requirements

Board reports will be the next big hurdle for firms to face as the regulator looks to utilise these, and the management information behind it, to determine a firm’s compliance with the rules. Good data is the bedrock of Consumer Duty compliance and, unsurprisingly, a key component of meeting the reporting requirements. 

Rather than a mad scramble or a shot in the dark, users of platforms such as MARS always have this intelligence instantly at their fingertips, automating the entire reporting process. As part of its latest update, the reporting page in MARS has been enhanced to enable firms to generate detailed reports on key metrics such as demographics and protected characteristics. 

When you consider the task at hand, there’s no question that consistent and unbiased processes play a critical role in not only meeting the requirements today, but ensuring that firms can identify vulnerability, monitor outcomes and report on results on an ongoing basis. It quickly becomes clear that avoiding “once and done” is only possible through technology, hence why the FCA has long advocated for firms to increase adoption.