The Committee of Public Accounts’ report has concluded that there remains a substantial risk of future mis-selling by financial services firms, fuelled in part by cultural issues and calls for the FCA to do more to proactively identify the failings and tackle the root causes.
Of the report’s conclusions and corresponding recommendations, the ones relating to culture and consumer understanding are perhaps the two most relevant to our clients.
Perhaps most significant to many will be the conclusion reached by the committee that the industry is still grappling to embed a truly customer centric corporate culture that is appropriately aligned to the interests of retail consumers. This is a further indicator of the political pressures to ensure that the FCA is doing more to assess and improve culture across financial services – so expect to see and hear more from the FCA on this theme!
The regulator has been pretty clear about what firms should have in terms of culture, which is one that places customers at the heart of business, but it is clear that some are struggling to either redefine their culture or implement it effectively. There is a wealth of information about culture that firms can use, but finding it and making it stick is trickier – this is where we, at TCC, traditionally find our clients need help.
As Andrew Bailey, incoming CEO of the FCA stated earlier in the week, culture is not tangible, therefore supervision of it requires drilling down to the individual elements that define it so that a picture of a firm’s culture can be built. This means that firms need to focus on the core contributory forces that define culture, which include current FCA focuses on incentives and senior management accountability, but should also consider the whole product lifecycle. To date, the majority of the regulatory focus in respect of culture has been on remuneration and incentive structures but arguably a lot more can and needs to be done in the areas of product design and distribution. We believe this is where the FCA is likely to turn attention to in the future.
Our senior team has substantial experience in product design and governance assisting firms in achieving positive consumer outcomes through appropriate design and development of products and services that meet the needs of and continue to provide value to customers.
Ensuring customer understanding
Making sure that customers understand the products and services they purchase from financial services firms and that they have the right information to help them make informed decisions is influenced by a firm’s culture. Firms that have the customer’s interests at the heart of their business will design products that meet an identified customer need.
Firms should be firstly considering the needs of their target market, financial literacy and their engagement with financial products before embarking on product design. For example, products that are complex or require lengthily documentation and information should not be developed for consumers that are generally disengaged in financial services as the likelihood is they won’t understand or engage with the product, potentially leading to negative consumer outcomes.
This is not only a concern for product providers however, distributors also need to be mindful of FCA focus in this area. Intermediaries and distributors need to consider whether the products they are selling/recommending are being sold to the target market they are intended for.
Customer communications is a hot topic for the regulator right now, and if our predictions are correct, is even more likely to become a key area of focus in pursuit of culture change. Therefore firms would be wise to consider whether their product design and distribution processes are producing the right outcomes. The best evidence for whether this is working comes directly from consumers. TCC is well placed to assist you in ensuring your design and distribution processes are robust and that monitoring is producing MI that is focused on customer outcomes rather than simply adherence to processes.
Don't Forget – Culture change is a fundamental element of Conduct Risk mitigation and the incoming Senior Manager's Regime (due industry wide H1 2018).
A foundation of culture change is good governance and template policies and Terms of Reference are available at our site HERE