The 4 Consumer Duty outcomes and how to align

The four Consumer Duty outcomes are the pillars of this new regulation. Organisations are advised and expected to shape their implementation plans around the substantive requirements as outlined by these outcomes. Recently, the FCA performed a review within which they evaluated firms’ current approach and identified best practice in the firms who closely aligned the outcomes in the context of their own business.

In this article, we discuss how to align your individual compliance practices and test them against the four outcomes.

1. Consumer understanding

What is this outcome?

This outcome is designed to ensure consumers are equipped to make good decisions, with access to understandable and timely information. The requirements set out ask firms to:

  • Support their customers’ understanding by ensuring that their communications meet the information needs of customers, are likely to be understood by customers intended to receive the communication, and equip them to make decisions that are effective, timely and properly informed.
  • Tailor communications taking into account the characteristics of the customers intended to receive the communication – including any characteristics of vulnerability, the complexity of products, the communication channel used, and the role of the firm.
  • When interacting directly with a customer on a one-to-one basis, where appropriate, tailor communications to meet the information needs of the customer, and ask them if they understand the information and have any further questions.
  • Test, monitor and adapt communications to support understanding and good outcomes for customers.

How can I align?

Communication is the cornerstone of this outcome. Firms need to evaluate their communication standards, processes and presentation to determine whether it is understandable and comprehensible and accessible. It should also be balanced – providing as much transparency around the risks as the benefits of the service.

The FCA points out some good practice they’ve seen as firms looking at multiple communication channels, revising scripts and language for readability, and implementing thorough testing cycles for all releases.

This will require the implementation of new compliance processes, involving individuals being assigned new responsibilities and frameworks set in place to support them to do so. They may also require new training or certification to become qualified for these responsibilities, which can be managed through a regulatory platform.

How can I measure compliance?

In short, implementing effective and ongoing monitoring processes will enable firms to evaluate the success of consumer understanding.

The FCA presents several metrics they’ve seen being used to evaluate outcomes, including marketing data, customer behaviour, and the quantity of customer-facing content being tested.

Evidencing that these requirements have been met, or at this stage considered in the context of a clear methodology for review, is also important. Implementing a task-based workflow with a clear breakdown of responsibilities and individual actions taken will support the effective delivery of this outcome.

Finally, this is an ongoing and evolving requirement. There will need to be regular tasks and milestones for your individuals to proactively ensure customers continue to understand the service.

2. Products and services

What is this outcome?

This outcome sets out to improve product design and clarity, so they are bought by the right customers and meet these customers’ needs.

  • Ensure that the design of the product or service meets the needs, characteristics and objectives of customers in the identified target market.
  • Ensure that the intended distribution strategy for the product or service is appropriate for the target market.
  • Carry out regular reviews to ensure that the product or service continues to meet the needs, characteristics and objectives of the target market.

How can I align?

The bedrock of your implementation plan should be to implement ways to evaluate products and services against the needs of your market or target audience. This means identifying their requirements, what their perceive as value, and then evidencing how your service provides this value.

Prioritise your products and services in terms of potential harm and carry out an initial evaluation. Based on the results, make a clear plan for making required improvements, alongside clear responsible persons.

FCA have also recommended firms strengthen product governance and assessment frameworks, which should start with the individuals in design and continue to monitor ongoing performance.

How can I measure compliance?

A solid compliance workflow will evidence the research you will undertake during product design stages and then breakdown tasks for how this assurance will continue long-term. Think about what processes can be put in place to mitigate or identify risks in individual conduct and requirements.

Organisations should also create a clear digital trail of activity so, if negative outcomes occur, they can identify the root cause. In turn, there should be clear processes for revising processes to prevent any issues in future.

They should also establish metrics for monitoring human performance in line with product performance monitoring.

3. Price and value

What is this outcome?

The FCA is driving the consideration of fair value – ensuring consumers have access to valuable and suitable products or services at reasonable and reflective prices. The FCA has outlined key questions to ask in order to evaluate this:

  • Are there elements of the pricing structure that could lead to foreseeable harm?
  • Are there fees or charges or rates which appear unjustifiably or unreasonably high compared to the benefits of the product and other comparable products (either in the firm’s product portfolio or comparable products supplied by other firms)?
  • Should/have any changes in the benefits of the product been reflected in the price?
  • Should/have any material changes to assumptions that underpinned pricing (for example on costs of servicing) been reflected in changes to the price?

How can I align?

Firms need to assess the value of their offerings and subsequently determine is the price being paid is reasonable compared to the benefits. This could span the entire value chain, with a particular focus on potentially hidden or unexpected costs as well as considering any potential barriers for different consumer groups.

Firms should implement clear processes that demonstrate they are scrutinising their pricing models in the context and record any changes made.

How can I measure compliance?

Similar to product and service, a thorough digital documentation footprint for individual compliance activity will be required. This allows organisations to demonstrate that individuals have completed required assessments at various stages in the value chain or in different departments. It will also enable them to identify and evidence the root cause of complaints. Appointing a representative to monitor value and gather feedback will be valuable in this process.

A regulatory data capture system will enable individuals to record clear relationships between service metrics, such as hours spent or charges placed, against the quoted cost of the product or service.

4. Consumer support

What is this outcome?

The FCA expects firms to support consumers to meet their needs and pursue their financial objectives. Overall, this outcome ensures consumers can act in their own interest.

Firms are required to:

  • Design and deliver support that meets the needs of customers, including those with characteristics of vulnerability.
  • Ensure that customers can use their products as reasonably anticipated.
  • Ensure they include appropriate friction in customer journeys to mitigate the risk of harm and give customers sufficient opportunity to understand and assess their options, including any risks.
  • Ensure that customers do not face unreasonable barriers (including unreasonable additional costs) during the lifecycle of a product or service.
  • Monitor the quality of the support they are offering, looking for evidence that may indicate areas where they fall short of the outcome, and act promptly to address these.
  • Ensure they do not disadvantage particular groups of customers, including those with characteristics of vulnerability.

How can I align?

Customer support journeys need to be evaluated end to end. Staff must be able to effectively spot vulnerabilities or warning signs, therefore updating training and certifications should be a priority. This should be set up as a compliance task and recorded in terms of progress.

The channels of your support will also be important: can you demonstrate that you either have, or plan to put in place, a variety of support channels catering to different user groups? Can you verify that they meet the commitments you set out for them?

How can I measure compliance?

Improvements can be prioritised based on risk assessments, which should be evidenced, and monitored based on various metrics such as resolution times, call waiting times, or complaints analysis.

There should be an assessment and implementation plan in place to evaluate your processes and record individual compliance within these processes. Organisations should implement tools that allow them to manage and systemise compliance with these support frameworks.

Individual Regulatory Compliance for the Consumer Duty

To support good consumer outcomes effectively, firms must establish good conduct within their organisation. Implementing a robust regulatory compliance platform like Trailight will enable firms to establish frameworks like, reasonable steps, in line with good consumer outcomes, alongside comprehensive data capture capabilities to evidence their implementation plans.

Find out more about Trailight and Consumer Duty here in our brochure.