In this second blog, we take a look at a recent speech by FCA Director Sheldon Mills; share our views on how firms can prioritise work under the consumer understanding and consumer support outcomes and look at areas of the Consumer Duty that have perhaps gone under the radar.
Leaping towards Consumer Duty
We never thought we’d see frogs mentioned in an FCA speech on Consumer Duty but Sheldon Mills (Executive Director, Consumers and Competition) managed to reference frog puns and metaphors not once but ten times at a recent Deloitte’s event. There were two key messages behind the creative approach: firms shouldn’t bury their heads in the sand and must ensure implementation is focused on areas where there’s the greatest risk of poor consumer outcomes and where they are furthest from meeting the requirements.
With only five months to go until implementation of Consumer Duty on existing products and services, mortgage intermediary firms shouldn’t underestimate the task ahead. However, a pragmatic approach is vital.
How to prioritise work under the consumer understanding and consumer support outcomes
Consumer understanding
In AMI’s view, firms should first identify communications that require consumers to act. Examples include suitability letters or e-mails that highlight the mortgage and/or protection solutions available.
These are the types of communications where if executed poorly, could result in poor consumer outcomes. Therefore, firms should seek to review these and make necessary amendments as a matter of priority. Firms can then develop the next stage of their communications implementation, for example they may review and assess communications that provide information but do not require a consumer to act on an individual basis such as websites or sales literature.
Consumer Duty is not about starting from scratch. In AMI’s view, mortgage intermediary firms should focus first on the use of language and the layout of communications against the new Consumer Duty standards. For example, are consumer communications tailored based on the target market? A communication that will be read by a consumer looking at later life mortgage options will likely need to be presented very differently to a communication aimed at a customer re-mortgaging (due to factors such as product complexity and a tendency for customers to assume they understand given previous experience with mortgages).
Where industry jargon is used, if it can’t be simplified can the firm provide an explanation to help aid consumer understanding? Again, this may need to be tailored based on the target market. For example, a first time buyer’s understanding of key mortgage and insurance words and phrases is likely to be less sophisticated compared to a re-mortgage customer.
Where mortgage intermediary firms are required to provide standardised documents such as an ESIS or a Key Facts document they should think about how they can support consumer understanding. For example, by explaining the purpose of each document and encouraging consumers to ask questions if there are particular parts they don’t understand or it is not clear what they are covered for.
If they have the resources, firms could also consider creative ways to relay key information such as the use of a short summary video to highlight key points to customers.
Consumer support
In AMI’s view, firms should focus first on reviewing their end-to-end customer service and whether they respond flexibly to customer’s needs. Firms should also identify the characteristics of vulnerability prevalent in each of their target markets and keep this in mind throughout their work.
Firms should understand where additional work is required to support customers throughout the end-to-end mortgage and protection journey. For example, a firm might decide to update its protection hand-off process to ensure advisers explain to customers the importance of a protection discussion and why this won’t be handled by the original adviser/firm. This is to help ensure customers have clarity on who they are dealing with and who to contact if they require further assistance.
Another firm might decide to update its fact find to allow the adviser to flag to customers the support it can provide and to give examples, such as where a customer hard of hearing preferred to receive correspondence via e-mail, or a customer that wanted to hold the mortgage/protection appointment by video call to involve their partner or relative. This is to help create an environment where consumers feel comfortable to share relevant information and discuss their requirements with their adviser/firm, to see whether tailored support can be provided.
The new Conduct Rule
It’s important not to overlook the ‘people’ element of the Consumer Duty. We wanted to focus on the new Conduct Rule, which mirrors core components of the Consumer Duty.
Conduct Rules staff* are required to:
- Act to deliver good outcomes for retail customers (Conduct Rule six).
- Act in good faith towards retail customers (a standard of conduct characterised by honesty, fair and open dealing and acting consistently with the reasonable expectations of retail customers).
- Avoid causing foreseeable harm to retail customers.
- Enable and support retail customers to pursue their financial objectives.
*This includes Senior Managers and applies to almost all employees in a firm except for ancillary staff e.g. receptionists, cleaning staff. Appointed Representative (AR) employees do not fall within the Conduct Rules staff definition. However, principal firms with ARs are still required to ensure the Consumer Duty is embedded in ARs and that staff are equipped to act to deliver good outcomes. Therefore, Consumer Duty related training and communications for ARs will be necessary.
Firms should ensure they’ve allowed sufficient time to train relevant staff, as the new Conduct Rule comes into force on 1 August 2023. Training should be tailored and role based. For example, training for advisers should be visibly different to training for an employee that conducts file reviews.
Firms should consider how they can make training interactive; in person sessions are more likely to help spread awareness and understanding of the cultural shift of Consumer Duty compared to an online module. Firms should also assess how they build Consumer Duty into incentives and reward structures and the T&C certification process.
The importance of communicating with ARs
If you are a principal firm with ARs, you are responsible for ensuring the Consumer Duty is applied within each of your ARs.
Areas firms should focus on include:
- How relevant information will be communicated to ARs in good time ahead of 31 July 2023 (such as information on what the Consumer Duty is about and how it impacts ARs).
- How a culture will be created in ARs that is reflective of the Consumer Duty.
- How ARs will be informed of changes made/that will be made to processes and procedures and the implications.
- Whether ongoing and/or ad-hoc information is required from ARs to help evidence and monitor good consumer outcomes.
- How they will monitor that ARs are complying with Consumer Duty requirements.
We’re here to help. If you have any queries about Consumer Duty, please e-mail info@a-m-i.org.uk.
