Acting in the best interest of your customers

The FCA has recently finished an initial consultation period for a proposed Consumer Duty. The two options for the wording of the Consumer Principle, which will be one of three key elements in the Consumer Duty, currently stand as:

• Option 1: 'A firm must act to deliver good outcomes for retail clients’
• Option 2: 'A firm must act in the best interests of retail clients’

According to the regulator, “Through the Consumer Principle and the Consumer Duty as a whole, the [FCA’s] aim is to set a higher standard of conduct for firms in relation to their retail market activities.”

The Consumer Duty would require firms to:

• ask themselves what outcomes consumers should be able to expect from their products and services
• act to enable rather than hinder these outcomes
• assess the effectiveness of their actions.

You may be thinking that your business already fulfils these requirements under Principle 6 ‘Customer Interests’ and the six Consumer Outcomes outlined in the fair treatment of customers initiative (see here). In fact, the FCA intends for the new Consumer Duty to strengthen business’ responsibilities to ensure customers are treated fairly. The guidance would require firms to consider the reasonable expectations of their customer base as a whole, as well as ensuring good outcomes for individual consumers.

The proposed consumer duty highlights the FCA’s ongoing focus on ensuring the fair treatment of customers and emphasises the need for brokers to ensure they continue to meet the requirements.

Every business should have ‘treating customers fairly’ (TCF) well and truly at the core of their culture, not just as a requirement of the FCA but because it demonstrates your commitment to your customers and, simply put, it is the right thing to do. However, questions often remain about how firms can assess customer outcomes and evidence that they are acting in consumer’s best interests.

The first step in ensuring you have the correct policies and procedures in place, is to conduct a TCF gap analysis. Most firms will have done so at least once, if not several times over the years, but has it been updated recently? It is recommended that a gap analysis is conducted at least annually to clearly identify areas where changes or improvements are required.

When assessing the fair treatment of customers, remember, it’s not always necessary to implement entirely new practices or methods of data collection. You may be able to use the information you have.

For example, this could include data on:

• New business
• Renewal retentions
• CPD records
• Claims rejections
• Complaints
• Customer feedback

The most important part is how you interpret and use the Management Information (MI) collected. A customer that appears satisfied is not always one that has been treated fairly and likewise, if a customer files a complaint, it’s not necessarily as a result of unfair treatment.

So how do you know if what you’re doing is working?

To truly assess the situation, it is vital (and indeed a regulatory requirement) to set Key Performance Indicators (KPIs) or targets to measure against MI.

There are no set benchmarks from the FCA for targets. The regulator recognises that what is necessary will differ depending on size, specialism etc. and so firms will need to evaluate what represents good outcomes for them.

An example of targets firms may wish to set could be:

• A 95% Renewal retention for Commercial business and 85% for Consumer
• No more than 2 upheld complaints in any 12-month period
• 30 hours of CPD each year for all staff

Once targets are in place, senior management should review the KPIs against MI to ensure they are being met and have a mechanism in place to consider any issues raised and implement necessary improvements.

If you would like any assistance ensuring you are properly able to assess and evidence fair customer outcomes, please contact your RWA Regional Business Manager or email helpdesk@rwagroup.co.uk.  You can also find out more by completing the ‘Treating Customers Fairly’ module on the Aviva Development Zone.

The FCA is currently considering the impact of the proposed Consumer Duty and its effect on the existing Principles. It expects to publish its second consultation by 31 December 2021 and make any new rules by 31 July 2022.