GFSC 2024 focus: Consumer Duty

Eleven months after the Consumer Duty coming into effect for existing business in the UK, we would like to share what we have observed and what firms should continue to focus on to meet regulatory requirements and prepare for the up-coming Consumer Duty regime in Gibraltar.

The Consumer Duty reflects a seismic shift around how the industry should view good customer outcomes. Firms need to focus on actively seeking good customer outcomes. It may seem like an academic distinction, but it demands a significant cultural change and new behaviours to keep customers front and centre. It is not as simple as updating your policies and processes, it requires a much deeper change in the way a firm operates. 

You need to demonstrate that you are achieving good customer outcomes consistently, for all retail customer groups and in-scope products and services. That requires ongoing work on your culture and behaviours to make sure the implementation is fully embedding.

Firms with closed-book products face additional challenges in making those compliant. Particularly for those looking to manage large, closed books of legacy business efficiently and profitably. 

Below we explore four key area of focus:

Fair Value

The GFSC highlights the importance of considering Fair Value across the whole product life cycle from design to withdrawal and throughout the customer journey including for significant adaptations.  

• The Fair Value Assessment need to consider the financial and non-financial value of products and to be robust in evidencing firms conclusions. 
• It is important to assess the entire distribution chain to fully understand the price paid by the end-user of your products. Insurance firms are expected to show how distribution supports the provision of Fair Value.
• Data has never been so important; however, firms are at risk of giving too much weight to quantitative data without sufficiently considering what they truly say or include the relevant level of qualitative data and analysis. Appropriate documentation and having a clear rationale supporting your decision making is key.
• Governance and committees are encouraged to prioritise consumer-focused discussions over prioritising financial performance. The significance of aligning firms’ strategies and culture with customer interests is essential.

Customer Support 

Customer Service has been subject to the highest number of complaints within the Insurance industry in 2023. 

• Consequently, continuous prioritisation of customer support across each step of your customer journey is vital for nurturing positive customer outcome, with clear available assistance that respond to each of our customers group including customer with vulnerabilities.
• Additionally, continual monitoring and evaluation of support quality not only guarantee consistent service provision but also pinpoint areas necessitating enhancement. 
• Complaints are only one indicator for identifying potential poor outcomes, Firm need to broaden their toolbox to fully meet requirements and consider other elements such as feedback loops, customer surveys. 

Governance – Annual Board Report 

Consumer duty should not be seen as a one-off project. Firms should ensure it is fully woven into their day-to-day operations. 

• Continuous and robust assessment of good outcomes by the three lines of defence is essential to inform decision-making and align strategies with customers’ needs. 
• The annual assessment need to adequately outline what works and where further work is needed. The Boards are expected to challenge the annual assessment and approve its content and remedial actions. This makes the Board more accountable in ensuring the provision of good outcome.

What does this mean for your firm?

Once Consumer Duty has been fully implemented for open products, it is timely to revisit and assess your customer outcome strategies addressing these challenges, reconfiguring operational strategies, and defining or reinforcing commitment to positive customer outcomes are essential steps for ensuring compliance and long-term viability in the evolving regulatory landscape.

For firms solely operating in Gibraltar, it is time to ensure that your project plans are sufficiently detailed and robust to cover these elements and that appropriate board oversight is in place.  

Governance arrangements and self-assessment 

Your board is / will be responsible for ensuring that you are appropriately meeting the Consumer Duty requirements. Your board, or equivalent governing body, should review and approve an assessment of whether your firm is delivering good outcomes for your customers, at least annually. This assessment should include results of your ongoing monitoring, any evidence of poor outcomes and the impact on specific groups and an overview or remedial actions.

Getting your closed book ready

You need to think about how to create good customer outcomes for products that were designed and sold years ago, when different rules, expectations and terms and conditions applied. You might also struggle with legacy knowledge of these products, as many of the people involved in designing and servicing the products may have left the business.

Gaining assurance over your compliance

It is essential to demonstrate compliance, show that you can articulate who your target markets are, that your fair value assessments are robust and complete, what good customer outcomes look like and that can measure them effectively.

This includes showing that vulnerable customers receive as good outcomes as other customers, and testing your consumer communications to assess how they support customer decision-making. There is also fair pricing and value to consider, and you will need to carry out regular reviews and an annual attestation to assess these. 

Optimising and refining your implementation

Continuous improvement is essential, and you can start refining your processes through a robust root cause analysis and stakeholder feedback. Enhancing board understanding, engagement and communication will help set the ‘tone from the top’ and embed the right culture across your firm.

Improving your existing customer tools, and implementing new ones, will help you drive customer engagement and ensure good outcomes. This includes optimising operations and supporting IT enablement to demonstrate good customer outcomes.

How can we help?

Preparing for and embedding the Consumer Duty does not happen overnight, and it requires significant cultural and specialist technical changes across the firm. It will take time, continual ongoing improvement, and expert knowledge to meet the GFSC’s requirements. 

Utilising our vast experience as Skilled Persons covering diverse facets of Consumer Duty, we provide invaluable insights to steer your organisation towards compliance and success. Our team offers expert advice and support to financial services firms, aiding in preparations for regulatory deadlines and ongoing assistance for upcoming closed product obligations. 

With our depth of knowledge and established track record, we're prepared to collaborate with you in navigating regulatory complexities and attaining your business objectives.

Blandine Arzur-Kean leads the regulatory advisory insurance practice in our financial services group. She has over 20 years of experience in the industry, ranging across conduct regulation, compliance function effectiveness, governance, and risk management, having worked in all these areas in-house prior to advising clients. Blandine also regularly supports the C-suite in understanding regulatory requirements.

Blandine leads our Consumer Duty work, by assessing client approaches and advising them on all aspects of this large regulatory change and being heavily involved in Skilled Person reviews focusing on product governance, fair value amongst other aspects of the Consumer Duty.