October 26, 2022
The Consumer Duty is the FCA’s flagship piece of regulation that is currently underpinning most of what the FCA is doing. It is focussing significantly on outcomes.
Speaking of outcomes, I am reminded about a speech that Charles Randell, the then Chair of the FCA, gave to the Building Societies Association on 6th May 2021. In that speech, Randell talked about the movie Groundhog Day.
Groundhog Day’s message is that by changing your everyday actions to achieve your goals, sometimes in small ways, you can produce better outcomes – not only in your own life, but in the lives of everyone around you.
Is the Consumer Duty another regulatory Groundhog Day? In some ways, maybe. It would be easy to suggest that the new Duty and its focus on outcomes is another re-badging of TCF, or ‘TCF Plus’, but it is more than that; it is a necessary evolution of a vision that is now 22 years in the making.
In the year 2000, the FSA issued a document entitled ‘A New Regulator for the New Millennium’ which set out its vision that it would “…assess the outcome of an action rather than the input”. The document acknowledged that outcome measures are more difficult to develop but explained that they are more informative.
The Principles for Business landed in 2001 – TCF is one of them, Principle 6: ‘a firm must pay due regard to the interests of its customers and treat them fairly.’
In 2006, five years after TCF under Principle 6 was introduced, the FSA assessed the progress in implementing the Principle. It described the picture as ‘mixed’, so introduced what we came to know as the six TCF outcomes. The FSA explained how it would assess whether the desired outcomes were being achieved.
In 2007, the FSA issued a document called Principles-Based Regulation: Focusing on the Outcomes that Matter. It said that it would measure its own performance against clearly articulated regulatory outcomes, and that firms would have increased flexibility in how they delivered the outcomes which the FSA required. Within 18 months of this document being issued, even though the National Audit Office had assessed the performance of the FSA and said that it had created ‘strong and effective structures’, the UK banking system was on the edge of collapse as a result of the global financial crisis. Those outcomes weren’t great at all… It appeared that the increased flexibility to deliver outcomes had failed.
So, another 15 years after the FSA’s 2007 document, and after 22 years of trying to measure outcomes, and having been through the eras of outcomes-based approaches, principles-based regulation, conduct risk, culture, and senior management accountability, the FCA is still trying to measure whether firms do the right thing and whether the customer gets the right outcomes.
For firms under the Consumer Duty, measuring outcomes is key – firms need to be smarter about the MI they use and not be afraid to ask their customers new and innovative questions – not just “did you understand this” but “what did you understand”. Not just measuring the number of staff that attended a training session but measuring whether they understood the training and whether it actually made a difference.
The Consumer Duty isn’t just a re-hash of old ideas, but it might be a re-stating of old ideas. It’s the next step in an evolution of that original FSA desire from the year 2000 to “assess the outcome of an action rather than the input”. It’s the next step in encouraging firms to change their everyday actions to achieve their goals, sometimes in small ways, to produce better outcomes. The Consumer Duty might seem like a Groundhog Day, because this is not a new concept, but the FCA is deadly serious about the Consumer Duty and we believe it will underpin any new FCA regulation for a number of years.
What’s in this for you and your firm? Doing the right thing can reduce risks – reduce risks of losing business, of complaints. Evolving your monitoring and your MI will allow you to show that you’re doing the right thing – and identify those areas where you might not be, so you can do something about it.