The FCA, Consumer Duty and Compliance Management Systems

“Consumer Duty” is the next big thing in financial services regulation. In this article, Ben Mason, CEO and Founder of My Compliance Centre looks at how Compliance Management Systems will assist regulated firms to fulfil their obligations under the forthcoming Consumer Duty regulations.

The FCA is “on it”.  Every speech and article they produce seems to strengthen their ongoing efforts to improve consumer protection.

The next piece of the jigsaw, and something that regulated firms will get to hear a LOT about in the next year, is “Consumer Duty”. For those with a long memory, this is being called “TCF on steroids” (Treating Customers Fairly – the FSA’s customer protection initiative of the noughties).

The FCA will publish its final rules next month with few changes expected to the proposals published in the consultation. The implications for firms are significant. Really significant. I have no doubt that some companies will have the unfortunate challenge of breaching the rules or going out of business – which is probably exactly what the FCA expects and hopes for, given its statutory objective to protect consumers and the working assumption that many firms are making their profits by ignoring their obligations to consumers.

Jennifer Cahill of Compliancy Services has written an excellent article (read at end of article) about what Consumer Duty will mean to regulated firms and their Senior Managers in particular. 

Which got me thinking: how exactly should a Compliance Management System support firms as they implement new controls to evidence Consumer Duty? 

The answer is that there are many ways in which a Compliance Management System (CMS) will support regulated firms as they implement Consumer Duty.  Here are just some of them:

Evidence

Central to an effective Consumer Duty programme is evidence – evidence of compliance. We go into more detail below, but, in general terms, a CMS should hold evidence across a wide range of supporting information and in an easily accessible format.  That is a fundamental starting point.

SMCR

An effective SMCR regime will recognise the overlap of SMCR and Consumer Duty. It is likely that firms will define a specific responsibility or responsibilities (unless the FCA do it for them) within their SMCR in relation to Consumer Duty. This in turn makes Consumer Duty and SMCR fully co-dependent. 

All CMS’s have an SMCR module. This in turn allows all formal responsibilities to be assigned to named individuals and all Reasonable Steps to be noted, to enable the Senior Manager to evidence how they are fulfilling their responsibilities, including in relation to Consumer Duty.

The CMS, by structuring itself in this way, enables a Senior Manager to demonstrate the Reasonable Steps being taken to evidence Consumer Duty, the most fundamental part of their defense in the face of an FCA investigation.

Compliance Monitoring

It is highly likely that all firms captured by the Consumer Duty rules will need to enhance their Compliance Monitoring Programmes (CMP) to capture Consumer Duty as a specific and named risk within their CMP.  

This will enable ongoing monitoring of all Consumer Duty controls, with the results and corrective actions being stored in one area and easily accessible by all staff with responsibility for Consumer Duty, further supporting the need to provide evidence of Consumer Duty compliance. 

Financial Promotions

Marketing communications are a central aspect of all sales of financial products to consumers. The compliance surrounding them is key to prevent mis-selling.  This principle is further strengthened within the Consumer Duty rules. 

A CMS offers a robust Financial Promotions management system, so that firms can build their own review checklists and authorisation processes, ensuring the right level of protection for their business. Every Financial Promotion will therefore have a full audit trail of how it came into existence and how it complies with the firms Consumer Duty policies.

By using an automated system, these records are built automatically, and do not rely on collating any e-mail records and manually updating registers or other records. 

Sales File Reviews

After-the-event sales reviews are a central part of many firms existing conduct risk controls, and this requirement will also strengthen once the Consumer Duty rules are implemented.

An effective CMS has a File Review module, which enables fully customisable file reviews to be designed and deployed, and thereby produce the corrective actions and the management information needed to evidence a firm’s ongoing compliance with Consumer Duty rules. 

Implementation

Consumer Duty is a regulatory change with new and onerous obligation on firms. But it is just one of any number of ongoing regulatory changes a firm will be dealing with. Many firms will want to manage this change using a structured approach, assigning a set of actions to the project and working through them to completion. 

A supporting CMS will facilitate the management of Regulatory Change, including Consumer Duty, by enabling all related actions to be assigned to the relevant staff and executed in tandem with all other regulatory changes and compliance tasks, rather than as just a one-off discrete project. It will also hold an automatically generated library of historical and current regulatory changes to provide that perfect audit trail. 

Governance

Governance of Consumer Duty will be important both for the implementation of new controls and the ongoing oversight of them. Firms will need to demonstrate that Consumer Duty features in agendas, minutes and committee action logs and is an ongoing point of concern of the board and other relevant committees, such as risk or compliance.

A supporting CMS will incorporate a governance style module which defines committees, their terms of reference, agenda, action logs, minutes and so on. Again, this provides a really easy way to evidence that the company is taking its Consumer Duty responsibilities seriously.

Reporting

The production of management information is a critical part of the Consumer Duty control framework.

While some MI will be produced by client facing systems, much of it will also be produced by the CMS, evidencing KPIs such as compliant levels of sales, financial promotions rejection rates and the number of corrective actions completed in relation to Consumer Duty.

Firms will also be required to carry out regular reviews of their products, services, pricing and customer service to ensure that they are all providing consumers with the right outcomes. Senior Management will be expected to demonstrate that they are doing this. And, that if something isn't right, they make changes, or even withdraw products and services. The outputs of reviews can also be stored and reported on through the CMS.

Document Management and Attestation

A final and simple part of the jigsaw is the availability of all Consumer Duty related policies to staff.  Once staff have been trained, they will need access to relevant policies.  These can be found within the Document Library of the CMS and this in turn will facilitate easy Attestation by staff to having read them, and the subsequent evidence of those Attestations via system reporting. 

Read here: Jennifer Cahill of Compliancy Services' article on what Consumer Duty will mean to regulated firms and their Senior Managers in particular. 

If you would like to find out more about how My Compliance Centre can assist you and your organisation to meet its regulatory obligations, please contact [email protected] or click here to book a demo.