Transforming culture and empowering customers: Benefits of the Consumer Duty 

Unless you have been living under a rock these past few months, UK-regulated entities will be aware that, at the end of July, the Financial Conduct Authority (FCA) will introduce the Consumer Duty, a requirement for firms to always act in good faith and deliver ‘fair value’ for their customers. 

The key requirements of the Consumer Duty are readily available elsewhere but there is an interesting angle to explore behind both the creation of the Consumer Duty and its goals and objectives: and that is culture. 

What is culture?

So far as the regulator is concerned it is defined as “the habitual behaviours and mindsets that characterise an organisation”.   

Bearing that in mind, it is interesting then to note that the FCA took the opportunity to change its approach by creating the Consumer Duty, moving further away from prescriptive, box-ticking requirements to one that is much more consumer-outcomes focused.

If the regulator expects, as suggested in PS22/9, to see a significant shift in both culture and behaviour by many firms, then perhaps it is only reasonable that the regulator too should start to evolve its own culture, in turn becoming more data-led and agile. 

In a recent speech, FCA COO, Emily Shepperd, noted that very point, suggesting that the FCA has already undergone a significant cultural shift and will continue to do so to try to speed up and make their interaction with firms and consumers more efficient. 

For financial services firms though, the changes in culture required by the Consumer Duty may be challenging: something that is noted by the regulator who “recognise that firms face challenges in driving the right behaviours to create healthy, sustainable cultures.” 

How exactly can a change in culture help empower customers? What does it all mean? 

The FCA has provided several questions which, if addressed, will help a firm adapt its culture. This should be a starting point to ensure Consumer Duty is successfully embraced by firms. Similarly, they have provided clear guidance about what lies behind an outcomes-driven culture. These are:   

• The governance of products and services;  
• price and value;    
• consumer understanding; and   
• consumer support.   

In many ways, these points underpin what many firms already practice – putting the customer first; providing services that meet customer needs; not exploiting customers and so on.  So, for many firms, the Consumer Duty should simply represent an extension of business as usual: putting themselves in their customer’s shoes to ensure they are being treated in the right way in what is a challenging consumer environment (because of the cost-of-living crisis amongst other things).  For others, it may be more difficult to adjust, but start by ensuring your culture, vision and values reflect, in the plainest of English, the notion of providing the customer with the absolute best service and then updating the firm’s behaviours, policies and procedures to reflect those values and you will have made a positive start. 

Remember, it will be important for firms to document these changes.  Chapter 13 of PS 22/9 states that:   

“Firms can expect at every stage of the regulatory lifecycle to be asked to demonstrate how their business model, the actions they have taken, and their culture are focused on delivering good customer outcomes. Firms can expect us to request their annual report, and other MI, and to publish an overview of our findings. As set out in our supervisory strategy, we may also use other tools, such as requiring a skilled person review, where we have concerns.” 

Hence being able to measure tangibly the cultural processes required to support the Consumer Duty and collate the management information required to support the cultural shift becomes important and this is why the FCA has allowed such a relatively long period for firms to undergo these strategic changes.  The FCA is clear though, from PS22/9, that the extended time is to give firms plenty of time to make what might be difficult changes to potentially deeply embedded culture – not to leave everything to the last minute:  

“Our revised implementation deadlines will help firms to embed the Duty, but it remains just as important that firms make full and effective use of the longer implementation period, with the necessary changes to policies, process, governance and culture put in place.” 

One key person who should be able to input into this process is the “Consumer Duty Champion” whom firms are expected to have appointed at the board level (ideally from the independent non-executive directors, where possible and indeed applicable) to help ensure that the Duty is discussed regularly and raised in all relevant procedures. This role need not be a senior management function, but it is important that this role fully engages with – and develops – the appropriate culture.  As Chapter 13 goes on to state:  

“We recognise that the benefits we expect will only be delivered by firms making lasting changes to their culture, behaviour and processes, which needs to be driven from the top with strong senior championing and oversight.” 

Firms that get right the basic premise of looking after their customers’ needs will thrive in the post-Consumer Duty world.  In many ways, so much of the guidance is common sense but addressing the cultural changes that may be required to adapt could be one of the most challenging things that some firms have ever undertaken. But a positive culture brings numerous benefits, and as the FCA itself shifts towards becoming an outcomes-based regulator, the significance of culture in its supervision will grow. This makes it even more important to wholeheartedly embrace and integrate the objectives of the Consumer Duty. 

If your firm is struggling to keep up with consumer protection regulations, get in touch today.