Embedding Consumer Duty into your firm's culture

Embedding Consumer Duty into your firm’s culture

Firms should be monitoring how their culture aligns with the Consumer Duty and how it is integral to the way the firm operates.

Key Takeaways

  • Review underlying principles of the FCA Consumer Duty
  • Understand the FCA’s expectations of a firm’s culture in relation to Consumer Duty
  • Identify key actions that firms may wish to consider when embedding Consumer Duty successfully within their culture
With the implementation date of the Consumer Duty (Duty) on 31 July 2023, firms across UK Financial Services had been focused on delivering on the requirements under the four outcomes; Product & Service, Price & Value, Consumer Understanding and Consumer Support. Concurrently, firms should also be monitoring how their culture aligns with the Duty and how it is integral to the way the firm operates, with the additional necessity to document corresponding processes and show how they ensure positive consumer outcomes.

‘Firms should ensure that the interests of their customers are central to their culture and purpose and embedded throughout the organisation’
FCA Final Guidance – FG22/5

The importance of cultural alignment with the Duty

In Chapter 10 of the Duty’s Final Guidance – FG22/5; Culture, governance and accountability, it states that the Duty sets a higher expectation for the standard of care that firms give customers. Asserting that for many firms, this will require a significant shift in both culture and behaviour, so they are consistently focused on customer outcomes and putting consumers in a position where they can make effective decisions.

Also, within the Final Guidance the FCA clearly set out the type of questions firms should expect to be asked in relation to their culture and governance arrangements in relation to the Duty. You can find more information on this in Consumer Duty: Key questions for firms to ask themselves.

The higher standard of the Duty and the shift to focusing on customer outcomes will require a significant change in many firms’ cultures.

Firms’ boards and senior management, if they haven't already, will have to embed a culture in which good outcomes for consumers is central. People management policies and practices, including performance management, pay and bonuses will be critical to doing so.

Firms can expect at every stage of the regulatory lifecycle to be asked to demonstrate how their business model, the actions they have taken, and their culture are focused on delivering good customer outcomes.

Emily Shepperd, Chief Operating Officer and Executive Director of Authorisations (4)

In addition, in the FCA’s January 2023 review of firms’ Consumer Duty implementation plans they highlighted concerns around the embedding of the Duty within firms’ cultures. Specifically, that some firms had undertaken limited analysis or lack of planned actions.

Therefore, action will be required by many firms to ensure the successful embedding of the Duty into a firm’s culture and the enduring compliance. It is clear that the FCA expects firms to demonstrate the impact of the actions they have undertaken to ensure their culture reflects the Duty.

So, what are the key actions that firms may wish to consider when embedding the Duty successfully within the culture of their firm?

Organisational culture

Actions for a firm to consider:

  • Identify gaps between their current culture and one that is aligned with the Duty.
  • Review committee memberships. Diverse membership with the appropriate skills, knowledge and attitude to provide the right oversight and challenge.
  • Empower the Duty champion to question all aspects of the firm’s practices and processes.
  • Challenge data and MI to demonstrate the firm is delivering good customer outcomes.
  • Consider the Duty in light of other change and transformation programmes being undertaken by the firm.

Relationship of senior leaders/employees and firm

Actions for a firm to consider:

  • Review the SMCR framework to ensure it is aligned with the Duty requirements.
  • Ensure that staff are aware of how Individual Conduct Rule 6 applies to their role (“You must act to deliver good outcomes for retail customers”)
  • Improve feedback processes to encourage employees to share ideas and concerns.

Competence, knowledge and skills of all employees

Actions for a firm to consider:

  • Review and refresh training modules to ensure the Duty is sufficiently incorporated in the content.
  • Provide ongoing training and upskilling opportunities to reinforce the Duty requirements and strengthen workforce’s knowledge and skill.
  • Create role‑specific peer level forums to encourage employees to share insights, experiences, and lessons learned.
  • Review workforce diversity.

Motivation of employees

Actions for firm to consider:

  • Review and update remuneration and performance management frameworks and policies ensuring consistency with the Duty.
  • Align reward and incentives structures with the delivery of good customer outcomes.
  • Recognise customer‑focussed achievements of employees.
  • Review process for variable remuneration in line with good customer outcomes.
The culture of any firm is difficult to define and as acknowledged by the FCA, there is no one definitive view of good culture. Each firm will need to map its own route based on its core purpose, values, customer base and business model. As noted by Andrew Bailey when he was Chief Executive of the FCA, culture is “everywhere and nowhere”. In simple terms, culture is a set of values and standards influencing attitudes, behaviour and thinking in an organisation underpinned by written and unwritten rules.

The interpretation of requirements and expectations for firms under the Duty will evolve over time. For firms to ensure ongoing compliance in an ever developing and changing environment, they will need to have embedded the Duty at every level of their firm’s culture.

Graham Finlay
Graham Finlay
Strategic and Technical Sales Manager

Graham works within the Strategic & Technical team at Columbia Threadneedle Investments. Graham has undertaken a variety of adviser focused roles since 2003. Over the last few years he has been responsible for developing and delivering presentations at seminars across the UK on a broad range of investment and financial planning related topics. Graham holds a number of industry qualifications, including the CFA Certificate in ESG Investing, Investment Management Certificate (IMC), Diploma in Investment Management (ESG) and has more than 20 years’ industry experience. Graham previously worked with both Edinburgh Fund Managers and Scottish Widows.

Graham Finlay
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