Day 2: The Role of Technology in Continuous Improvement
The FCA’s new Consumer Duty regulation has had a profound impact on the financial services market since it’s go-live in July-23. Valentia Partners takes a look at some of the challenges firms have faced since Day 1, what is required to implement effective monitoring and reporting processes, and how firms can future-proof procedures to ensure they act in the interests of their consumers in the future.
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Not a one-and-done…
In contrast to previous regulation, the FCA’s Consumer Duty has sought to change the fundamental behaviour of organisations; altering their thinking and culture, and putting client needs and outcomes at the centre of decision-making processes. The FCA believes that this shift will bring about meaningful changes in the market, fostering proactivity and ultimately leading to improved client outcomes.
The regulation was made intentionally open-ended, leaving it up to firms to interpret and determine the necessary change needed to adhere to the rules and guidelines. This was a deliberate act by the FCA to get firms thinking and talking about what the Duty meant, and to go the extra mile to not be left behind. With no predefined baseline for exactly what was needed, many firms opted to outrun their peers, as the age-old adage says:
“You don’t need to outrun the bear; just your friend.”
Day 1 Solutions - Navigating Uncertainty with Caution
While the ideal might have been to revamp all processes and touchpoints for an enhanced customer experience; practical constraints, time limitations, and significant costs have made such a comprehensive overhaul impractical for most organisations.
With just 12 months between the publishing of final guidance and the first implementation deadline for Open Book products and services, many firms already had an uphill battle to perform their gap analysis, understand the change required, mobilise projects, identify requirements, and deliver the actual change.
Due to this, many firms opted for tactical solutions on Day 1 of the regulation. By prioritising the implementation of essential changes under the Minimal Viable Product “MVP” approach, organisations were able to take confidence in meeting the regulatory compliance threshold within the deadline, but the MVP approach did not typically ensure long-term operational efficiency and ongoing adherence that still needed to be tackled. Whilst to some, implementing these solutions might sound incomplete – and they arguably were not what the FCA intended – there is logic in this approach. For example, with so much uncertainty surrounding some aspects of the regulation, it was understandable for some firms to take a more cautious approach for Day 1, and then look to enhance processes further as part of Day 2 and continuous improvement activity. The prudent approach to wholesale change has the added benefit of being less likely to implement comprehensive changes that don’t actually provide the intended solution or meet the requirements, and are also more cost-effective in the first instance.
This has been exemplified by the manual reporting approach that many firms opted for on Day 1 – the majority of which are temporary in nature rather than strategically embedded. Whilst many aspire to have technical/automated solutions to support monitoring and reporting, this type of solution was not advisable for many firms on Day 1 as their data and reporting requirements were almost certainly going to change on Day 2 – not to mention the very tight timelines that firms were already working to.
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