FCA’s Sheldon Mills heralds consumer duty as catalyst for innovation
Financial Conduct Authority (FCA) executive director of competition and consumers Sheldon Mills has argued that the consumer duty could ‘radically improve’ financial services businesses.
Speaking at a ‘Countdown to Implementation’ event hosted by Deloitte today, Mills said he understood why there had been reluctance to embrace the new regulations but believed compliance would help spark innovation in financial services.
“Perhaps one of the reasons for that reluctance is this: We at the FCA have not been great at explaining what is in it for firms and UK Plc,” Mills said.
“An industry leader recently admitted to me that although on the face of it, the duty was a pain as it required work and resources, her directors were reporting that actually, it was proving to be a useful exercise.
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“They were uncovering customers they had not engaged with for some time. They were hammering out plans for new products and services ahead of schedule. They started looking at potential problems far earlier – and importantly, identifying new opportunities earlier too.”
Mills said the process of preparing for the new rules, which come into force in July, will force businesses to think differently, sparking innovation.
“Thinking differently and exposing yourself to meaningful change is at the heart of innovation,” he said. “The consumer duty is an outcomes-based approach. Data and outcomes monitoring is key, giving firms the impetus to target their customers more accurately through new technologies and systems.
“The consumer duty is a customer-centric regulation. When you are engaging customers in a way that showcases how your product proposition is beneficial to them, it will have an impact on stakeholders and potentially on society at large. You are incrementally or even radically, improving your offering to the market.”
He went on to argue that the new standards would help to drive effective competition in the market, help firms avoid customer complaints and, consequently, reduce costs.
“It should also provide an opportunity to inspire customer loyalty,” he added. “Ultimately, it will also increase trust in financial services, levelling up standards so that those who are striving hard are not taken down by industry stragglers.”
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Addressing the question of whether compliance with the consumer duty is deliverable, he said he had seen robust plans for implementation that proved it was.
“Many had subjected their plans to scrutiny and challenge by the board, executives and audit and risk teams,” Mills said. “In one example, a firm is delivering one-to-one deep dive sessions with board members on plan deliverables.
“Most firms have appointed a consumer duty board champion at board level to ensure that the duty is discussed in a meaningful way. We identified an example where a firm with a large group structure has appointed two champions to reflect the diversity of its different regulated entities. Many firms have detailed, clear arrangements for ongoing scrutiny of their organisation’s implementation work.”
He said the FCA was currently in the process sending out industry-specific letters, building on the guidance firms already have, to help firms understand how to embed the duty in their business area.
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