This blog post includes AMI’s views and draws on findings from the FCA’s review of firms’ implementation plans.
With Christmas a distant memory and the focus firmly on what 2023 brings, the mortgage intermediary sector is pushing forward with implementation of the FCA’s Consumer Duty ahead of the 31 July deadline (when the Consumer Duty applies to existing products and services).
However, if your firm feels a little lost with how to take implementation to the next stage you are not alone. We’ve heard from some firms that it’s been challenging to prioritise their work and when to recognise where existing frameworks and data strategies can be built on or re-purposed.
In fact, the FCA found in a recent multi-firm review of larger firm’s implementation plans that some firms were not prioritising implementation of the Consumer Duty effectively. It has encouraged all firms to focus on reducing the risk of poor consumer outcomes and assessing where they are likely to be furthest away from the Consumer Duty requirements.
Where’s the greatest risk of poor consumer outcomes?
In AMI’s view, consumers are at the greatest risk of poor outcomes when dealing with a mortgage intermediary firm if they are sold a product that is unsuitable (products and services outcome) and/or if they encounter fees and/or a service that isn’t fair value (price and value outcome).
We therefore feel mortgage intermediary firms should prioritise these two outcomes first, as this will likely set the foundation for implementation of the other two outcomes (consumer understanding and consumer support). For example, identifying target market(s) will help firms to assess whether communications are likely to be understood by customers within the target market (a requirement under the consumer understanding outcome).
It is, however, important to remember that Consumer Duty goes wider than the four outcomes. Firms should refer back to their Consumer Duty implementation plans, as these may include mapping out key milestones and a ‘gap analysis’ of what the firm needs to do to meet the new standards (if not done so already, these may prove useful tasks). This should help provide focus and direction.
Review existing frameworks and think about their wider role
Firms may find it helpful to carry out an ‘audit’ of existing processes and procedures, thinking about how these may help demonstrate adherence to elements of the Consumer Duty requirements. Whilst it’s important for firms not to assume they are already meeting the Consumer Duty requirements fully, this should be balanced against how the mortgage intermediary sector is starting from a point further ahead than many other retail financial services sectors.
For example, when considering how a firm can demonstrate that its distribution arrangements ensure products are sold to the intended customers under the products and services outcome, it should document the role of relevant existing processes, procedures and controls.
Examples include:
- the use of sourcing systems – which help firms to assess suitability and ensure products are distributed in line with lender’s distribution strategies, and
- file reviews – which help ensure distribution strategies set at firm level are being followed by advisers.
Another example would be tailoring communications under the consumer understanding outcome. A firm that provides advice to first time buyers considers that consumers within this target market may need clearer and more detailed communications about the mortgage process and key stages and adapts communications accordingly. This type of approach demonstrates that the firm is taking into account, at a target market level, the sophistication, financial capabilities and vulnerability of this particular cohort of customers.
Data and monitoring
“If firms assume they can ‘get by’ largely with repackaging or supplementing existing data, then they risk not thinking deeply or afresh about the types and granularity of data that they will actually need to monitor and evidence outcomes under the Duty effectively”. – FCA multi-firm review of firms’ Consumer Duty implementation plans.
Purpose of data
Data plays a key role in Consumer Duty. It should be used by firms proactively, to monitor and assess whether they are delivering good consumer outcomes; to identify themes and trends; and to highlight potential areas of improvement within the business. Firms should be thinking about the data they already collect (does this allow the firm to evidence and monitor consumer outcomes? Can it be developed further?), as well as new data points.
For example, a firm decides to document the data it currently collects, split into regular and ad-hoc data. It looks at each of the data points to see whether it allows the firm to identify and monitor the outcomes customers are receiving. It also considers if the data can be used more holistically, such as complaints, where it decides to implement a regular review to enable it to draw out key complaint themes or trends. It also implements a process for any themes/trends to be flagged within the business and for senior management/Directors/the business owner to review and discuss whether any changes are required to processes or procedures.
Collecting new data
Firms should think carefully about what additional data they may need to collect. The data should be purposeful, considering the aim of the Consumer Duty. The types of data will depend on factors like firm size, its client base and the types of products and services it offers and will be down to firms to judge what is appropriate. Remember: the FCA recognises that firms have different capabilities. One question firms can ask is are they collecting and monitoring data on customer outcomes to the same extent they use data for new business and customer retention?
Looking at outliers
Once data has been collected, firms should ensure they also look at outliers. Outliers are a useful tool in helping a firm identify where some consumers may be receiving worse outcomes than others. For example, data on broker fees charged could be used to identify where a firm’s fees policy hasn’t been followed. The firm may need to investigate further to understand the circumstances and provide assurances that they are acting to deliver good consumer outcomes. Where a firm identifies consumers are not receiving good outcomes, it must act appropriately.
AMI factsheets
AMI’s Consumer Duty factsheets are designed to help firms break down the key components of the Consumer Duty and include ‘action plans’. If you haven’t reviewed these already, we strongly suggest you have a look and share with any relevant colleagues.
