The Consumer Duty Act, introduced by the FCA this year, asks firms to act to deliver good outcomes for retail customers. Firms need to be able to show that they have, always, acted in good faith, avoided causing foreseeable harm, and enabled and supported clients to pursue their financial objectives. Firms are also required to make sure that clients receive communications they can understand, products and services meet their needs, offer fair value, and provide client support.

Consumer Duty goes back to the misselling scandals around PPI and also to the financial crash in 2008.

Its most significant facet is to add a quasi-duty of care that says firms must provide consumers with only the best or the most appropriate products and services. The duty of care sits on top of existing principles. It adds clarity and removes any uncertainty about what firms must do.

Alan Blanchard, Head of Business Development UK at Apiax comments: “There needs to be clarification and a process where a wealth manager can show that they recommended something, that the client understood that, but then the client decided independently to invest in something else. That is a potential grey area regarding where the duty of care starts and finishes.”

“It runs all the way through from the legal, to the compliance team, to the business development team, and to the distribution and the relationship managers. I think the pain is everywhere, as always,” he says.

The role of technology
So how can technology help in both evidencing the duty of care and as an efficiency play, leveraging tools like behavioural finance and adopting proper risk profiling to prove not only that a duty of care took place but also optimising that process? 

Blanchard comments: “I think there should be a push from industry to get to a common framework to define what is acceptable and unacceptable. The whole Consumer Duty implementation needs to be a platform-based, data-driven exercise around managing all this information going backwards and forwards, what is sent to clients and what they come back with.”

Ian Ewart, Adviser at Kore Labs, adds: “It is all about evidence. The idea is that you put yourself in the consumer’s shoes and if you can show that you have actually played the advocacy role, that you’ve referenced the understanding.”

The likelihood is that firms will need to be time specific and auditable. That means retrieving the documentation and data easily and showing it can drive actions with data, draw on data to point to dates, and build an audit trail.

Ewart comments: “This has to be, culturally and mindset-wise, part of the way the firm thinks and operates going forward and permanently.”

The human element
He says that although technology can help with the process, cultural change takes human input, so the question has to be around who takes responsibility. “Is it the compliance officer, a board member? And where do firms start, given this is so all-encompassing? Is there a starting point and that it all moves on from there,” he questions.

Ewart comments: “I would imagine that you probably would want somebody who is quite senior within the firm. Regarding the controlling instance, it should be either the chair or the deputy chair that plays the client advocate role.  

“Culturally, we would expect as that cascades down the organization for people to play that role from product inception right along the value chain.”

Interestingly though, cultural change can be driven by technological enablement. The more technology can do for us, and the easier that makes things, the more open people are to making changes.

Blanchard comments: “For me, what is driving the cultural shift is the technology rather than what is being done over here by the regulator. FinTechs do not have all the legacy and tech infrastructure debt we hear about in traditional firms. So, steering a FinTech is more akin to a speedboat than an oil tanker. The regulators are very aware of this, so they do not mind giving them a shove, if possible, to put some rules in place to support that. We strongly believe that tech has a very important role to play right through the heart of the business, and Consumer Duty seems to be another element that backs that up.”

Ewart agrees; he thinks technology can help but only if it is joined up rather than a disparate, specialist solution. “If a wealth manager managed to put all in digitisation tools, plus the middle and back office together and had a nice front-end delivery, then it would be in an extremely good place to be able to run with these changes.”

“There are aspects of taxonomy here; giving yourself a clean opportunity to work through processes and join them all up. You have to have a plan,” he says.

Transparency
An extension of that is the idea of firms being more generally open and transparent. “If everyone is prepared to put themselves above the line and say, ‘this is how we do it,’ and be prepared to share technology and know-how with the other firms, then that would massively help,” says Blanchard.

Indeed there is an emerging view where data beats regulation. If the data is easily available, the regulator does not need to be prescriptive. 

Ewart comments: “I think this will become an industry trend. The use and sharing of data, and especially a database conversation with the regulator, will be a much better footing than the almost headmaster-pupil kind of relationship we have had in the past.

Blanchard points to the Bank of England, which is looking at close collaboration with firms. “I think this is the direction of travel. I think this is the right way to go, and I hope that the Bank of England makes the strides they’re aiming for. Technology can move very quickly, but the adoption and the implementation of that can move very slowly, so collaboration would be one way to shorten the time frame on this,” he says. 

This echoes what is happening elsewhere. There are product development design obligations in Australia, and Singapore and Hong Kong are both very interested in where Consumer Duty is going. 

Indeed, the Consumer Duty train is about the ride rather than the destination. It is as much about how the industry collaborates with its peers and the regulator as it is about the specifics. The question is to what extent the FCA, The Bank of England, and other organisations in the UK, can work together. The aim is to put in place a technologically-led environment where Consumer Duty is deliverable in an industry-wide sense, as opposed to individual firms doing their own thing. 

Obviously, there are some constraints and obligations on how the FCA supervises the industry and some policy issues.

But on the plus side, post-pandemic, the industry is in a positive place as regards innovation and change. The mindset is now changed, particularly around data, mining it, and making it into something useful that can transform how we engage with customers, with regulators and how we understand our business.

Blanchard concludes: “The whole point of regulatory technology and the regulatory technology movement is to solve problems like this. It is doable; there are people out there you can trust. It is really happening!”