Greg Kilminster
Head of Product - Content
Because of a public holiday in the UK there will be no RegTrend coverage on 26 August.
A leap forward for UK financial services: The impact of the FCA's Consumer Duty
The Financial Conduct Authority (FCA) has published the transcript of its webinar from the end of July 2024 which considered the impact of the FCA’s flagship consumer duty a year after implementation. The webinar comprised separate presentations, summarised below. We covered Sheldon Mills presentation separately on 1 August 2024.
Abby Thomas: FOS's evolving role and operations
Abby Thomas, Chief Executive and Chief Ombudsman of the Financial Ombudsman Service (FOS), shared insights on how the Consumer Duty has influenced the financial services landscape and the role of the FOS in this context. She emphasised that the FOS's mission remains focused on resolving complaints fairly and reasonably, ensuring both consumers and businesses benefit from their service.
Thomas highlighted how the FOS has restructured its teams over the past two years to align more closely with industry sectors and support initiatives like the Consumer Duty. The organisation has embraced digital transformation to improve the complaint-handling process, leading to significant improvements in the quality of service and faster resolution times.
Consumer Duty's impact on complaints and FOS assessments
Since the Consumer Duty's implementation, the FOS has begun seeing complaints influenced by the Duty’s requirements. These complaints often relate to how firms communicate with customers, particularly when customers do not fully understand a product or service. The Duty's emphasis on clear communication and meeting customer needs has affected how the FOS assesses fairness and reasonableness in these cases.
Thomas discussed several common complaints including the following.
- Communication and understanding: Thomas gave an example where a bank’s unclear communication about an interest rate change led to customer confusion and a prolonged resolution process. This highlighted the need for firms to anticipate potential misunderstandings and communicate more effectively from the outset.
- Customer service failures: She discussed a case where a credit card provider failed to respect a customer’s request for written communication only, exacerbating the customer's distress. This case underscored the importance of tailoring customer service to individual needs, particularly in vulnerable situations.
- Failure to accommodate customer needs: Another example involved a customer with a health condition who was required to visit a bank branch despite their difficulty in doing so. This case illustrated how rigid adherence to standard processes can fail to meet the Duty's requirements for supporting vulnerable customers.
The importance of effective complaint handling
Thomas emphasised that good complaint handling is not just about resolving individual cases but also about understanding and addressing the root causes of complaints. Firms should use complaints as opportunities to improve products, services, and overall customer experience.
Call to action for firms
Thomas urged firms to reflect on their complaint-handling processes by asking themselves whether they treat customers as they would expect to be treated. She encouraged firms to use insights from complaints to proactively address issues and demonstrate progress in embedding the Consumer Duty across their organisations.
Thomas concluded by expressing her commitment to working with firms to reduce the need for complaints and improve complaint handling under the Consumer Duty. She sees this as a crucial step in building trust and confidence in financial services.
Graeme Reynolds: focus on culture in firms
Graeme Reynolds, Director of Competition at the FCA, emphasised the critical role of a firm's culture in successfully implementing the Consumer Duty. He noted that firms with a culture aligned with customer interests tend to perform better under the Duty, with positive impacts observable from senior leadership down to product design and delivery.
Holistic approach to the Consumer Duty
Reynolds stressed the importance of an holistic approach to the Consumer Duty, where firms integrate all aspects of the Duty into their operations. This means not only focusing on specific outcomes like pricing but also ensuring that customer understanding, support, and product offerings are all aligned to deliver the best results for customers.
Cultural shifts and customer-centric practices
During the past year, some firms have made significant cultural shifts, including redefining their purpose and values to better align with the Consumer Duty. Examples of these shifts include updating customer interaction points, such as call centre scripts, to ensure staff are better prepared to meet customer needs. Firms have also increasingly adopted data-driven approaches to understand and meet customer characteristics and needs.
Importance of challenge culture
A culture of healthy challenge within firms is seen as crucial for delivering good outcomes under the Duty. Reynolds highlighted the role of board champions, who, despite mixed opinions among firms, have proven effective in driving change and challenging decision-making processes. This will be particularly important as firms move into implementing the Duty for closed products and services.
Board reports were also discussed as a tool for enabling effective challenge. Reynolds noted that the FCA has not been prescriptive about the format or length of these reports, allowing firms the flexibility to tailor them to their needs. For smaller firms, which may not have extensive assurance frameworks, alternative mechanisms to introduce effective challenge are encouraged.
Flexibility for firms of all sizes
Reynolds acknowledged the diverse nature of firms, particularly smaller firms, and emphasised that the Consumer Duty is not a "one size fits all" approach. The FCA aims to provide flexibility and support, allowing firms to implement the Duty in a way that makes sense for their specific operations. The FCA will continue to offer guidance by highlighting examples of good and poor practices across different sectors.
Panel discussion
In the webinar’s panel discussion participants discussed the significance of culture, continuous improvement, and consumer outcomes within the financial services industry.
- Therese Chambers, Joint Executive Director of Enforcement and Market Oversight, FCA: Chambers stressed the importance of embedding a culture of continuous improvement within firms to adapt to the evolving regulatory landscape. Chambers highlighted responsiveness to best practices and feedback as crucial elements in fostering this culture.
- Dominic Cashman, Director of Authorisations, FCA: Cashman noted a positive shift in firms' applications, where the Consumer Duty is now integrated into their operations rather than being an afterthought. He emphasised the importance of firms being able to articulate how they plan to meet the Duty's requirements.
- Abby Thomas: Thomas provided further insights from the FOS's perspective, noting that good practices are evident in firms that thoroughly understand the customer journey. She encouraged firms to focus on the end-to-end customer experience, stressing continuous improvement and responsiveness to customer feedback.
- Graeme Reynolds, Director of Competition, FCA: Reynolds discussed the challenges firms face in implementing fair value assessments and outcomes monitoring. He outlined key elements for successful fair value assessments, such as robust benchmarking and customer cohort analysis. For outcomes monitoring, he stressed the importance of using both qualitative and quantitative data to identify and address potential poor outcomes.
- Dominic Cashman: Cashman also highlighted challenges at the FCA's gateway, such as firms struggling to demonstrate how their products deliver good consumer outcomes and the reliance on consultants without fully understanding the implications.
- Abby Thomas: Thomas added that while the Consumer Duty aligns closely with the FOS's focus on fair and reasonable treatment, emerging themes like price and value complaints are being closely monitored, with insights shared with the FCA to drive improvement. She added that success for the FOS involves a reduction in complaints and continued collaboration with the FCA to ensure firms adopt best practices.
- Therese Chambers: Addressing enforcement, Chambers reassured that the FCA's approach is collaborative rather than punitive. However, firms that are clear outliers may attract regulatory scrutiny if they fail to address issues identified by the FCA.
- Graeme Reynolds: Reynolds emphasised the importance of flexibility in the Consumer Duty framework, allowing firms to innovate while ensuring good customer outcomes. He also mentioned the ongoing review of FCA rules to balance prescription and flexibility. He added that success for the FCA will be measured by increased consumer trust, reduced complaints, and innovation in delivering customer outcomes.
The FCA plans a post-implementation review to assess the Duty's impact.
Click here to read the full RegInsight on CUBE’s RegPlatform
CMA issues letter to Santander UK over open banking violations
The UK Competition and Markets Authority (CMA) has sent a letter to Santander UK plc (Santander) regarding its failure to comply with Part 2 of the Retail Banking Market Investigation Order 2017. This order requires the nine largest banks in Great Britain and Northern Ireland to maintain accurate, comprehensive, and up-to-date product and reference information through Open Banking Application Programming Interfaces (APIs).
Details of the breaches
Santander was found to have violated Part 2 of the Order by not keeping information published through Open Banking up to date and by failing to publish some information at all. The CMA identified 106 data fields containing either outdated or missing information, with the longest failure spanning approximately seven years. This included incorrect listings of open bank branches and omitted interest rates.
Next steps
Santander self-reported these breaches, and in response to actions taken by Santander since then, the CMA has decided not to pursue further formal enforcement action at this time. The CMA has also shared the letter with the Financial Conduct Authority (FCA)or their awareness.
Click here to read the full RegInsight on CUBE’s RegPlatform
ASIC reports on regulatory interventions against greenwashing
The Australian Securities and Investments Commission (ASIC) has published Report (REP) 791 detailing the regulatory actions taken by ASIC between 1 April 2023 and 30 June 2024 in response to concerns regarding greenwashing claims. The report provides an overview of ASIC's findings, key recommendations, and examples of best practices identified during its surveillance activities in the 2023-2024 financial year.
Key takeaways
During the period ASIC conducted 47 regulatory interventions to address greenwashing misconduct. These interventions included:
- Securing 37 corrective disclosure outcomes from various entities.
- Issuing eight infringement notices totalling over $123,000.
- Initiating civil penalty proceedings against LGSS Pty Limited (Active Super) and Vanguard Investments Australia.
Additionally, ASIC pursued civil penalty proceedings against Mercer Superannuation (Australia) Limited, resulting in an $11.3 million penalty.
ASIC's regulatory interventions focused on:
- Inadequate disclosure regarding the scope of ESG (Environmental, Social, and Governance) investment screens and investment methodologies.
- Underlying investments not aligned with disclosed ESG investment screens and investment policies.
- Sustainability-related claims lacking reasonable grounds or sufficient detail.
Next steps
ASIC encourages entities to consider the matters identified in both REP 763 and this report when preparing disclosures and to undertake a review of any existing sustainability-related disclosures with these matters in mind.
ASIC acknowledges the forthcoming significant regulatory changes in the sustainability space.
During the transition, ASIC will uphold current disclosure and governance standards, ensuring entities comply with their existing legal obligations, including the prohibition against misleading and deceptive conduct.
Click here to read the full RegInsight on CUBE’s RegPlatform
APRA increases ANZ capital add-on due to non-financial risk management concerns
The Australian Prudential Regulation Authority (APRA) has announced an increase to the capital add-on imposed on the Australia and New Zealand Banking Group (ANZ) to $750 million. This decision comes in response to growing concerns regarding the bank's management of non-financial risks.
APRA longstanding concerns
APRA has consistently expressed concerns about ANZ's non-financial risk management. In 2019, APRA notified ANZ, as well as National Australia Bank (NAB) and Westpac, about an increase in their minimum capital requirements by $500 million each. These capital add-ons were intended to remain in place until the banks completed their planned remediation to enhance risk management and addressed the identified gaps in their self-assessments.
Despite implementing a remediation program, APRA has not observed significant improvements in ANZ's non-financial risk management. Notably, of the major banks that had capital add-ons imposed in 2019, ANZ is the only bank that has not had its add-on either removed or reduced.
Additional concerns over ANZ's markets business
APRA's concerns were further heightened by various issues arising in ANZ's markets business. ANZ admitted to misreporting bond trading data to the Australian Office of Financial Management (AOFM) in 2022-23 and has taken action in response to poor conduct by employees in its Markets business. Despite launching multiple investigations, ANZ has yet to adequately address deficiencies in controls, risk culture, governance, and accountability, prompting APRA to take decisive action.
APRA expectations
In response, APRA has mandated the following actions for ANZ:
- Hold an operational risk capital add-on of $750 million, an increase of $250 million from the existing add-on.
- Appoint an independent party to conduct a review of the root causes of recent issues and assess risk governance in the market's business while evaluating potential impacts across the broader bank.
- Develop a comprehensive remediation plan to address the findings from the independent review. The capital add-on will remain in place until ANZ has satisfactorily delivered the required remediation, as determined by APRA.
Click here to read the full RegInsight on CUBE’s RegPlatform
MAS consults on proposed Transition to SFRS(I) for CIS financial statements
The Monetary Authority of Singapore (MAS) has released a consultation paper seeking feedback on proposed changes to the requirements for the preparation of financial statements and reports under the Code on Collective Investment Schemes (CIS Code).
Some context
Under Chapter 5.1 of the CIS Code, the manager of an authorised collective investment scheme (Authorised Scheme) is currently required to prepare the scheme's financial statements in accordance with the Statement of Recommended Accounting Practice 7: Reporting Framework for Investment Funds (RAP 7) issued by the Institute of Singapore Chartered Accountants (ISCA). Financial statements prepared in line with RAP 7 generally need to comply with the Singapore Financial Reporting Standards (SFRS) issued by the Accounting Standards Committee (ASC), unless specified otherwise by RAP 7.
In 2014, the ASC announced that Singapore-incorporated companies listed on the Singapore Exchange would transition from SFRS to SFRS(I) from 1 January 2018. However, this transition did not apply to Authorised Schemes, including real estate investment trusts (REITs).
Key takeaways
MAS is proposing to:
- Require Authorised Schemes (including REITs) to prepare their financial statements following SFRS(I) instead of RAP 7.
- Retain certain disclosures required by RAP 7 but not required by SFRS(I) by prescribing these disclosures in the Code on Collective Investment Schemes.
MAS aims to give Authorised Schemes managers enough time to prepare for the transition from RAP 7 to SFRS(I) and to collaborate with ISCA to introduce measures to facilitate the transition.
Next steps
The deadline for feedback is 14 September 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform