Sara Haworth Senior Consultant at Square 4 Partners tells us why reviewing your outcomes monitoring framework should be top of your firms to do list.
Since the implementation of the Consumer Duty in July 2023, customer outcomes must be effectively monitored so that firms can evidence whether they are meeting their regulatory obligations. Firms need to regularly assess, test, understand, and evidence the outcomes their customers are receiving. To put it simply, without monitoring outcomes, it would be impossible for firms to truly know whether their products and services are working as intended, and in a way that is consistent with the Duty.
Although monitoring outcomes has its own section in FG22/5, it is still a nebulous concept to some firms and is proving one of the more difficult challenges to get right. Indeed, in a webinar hosted by the Financial Conduct Authority (FCA) on 31st July 2024, it was noted that one of the two key challenges still faced by firms after the implementation of the Duty was outcomes monitoring; the other being price and value, both of which can, and should, complement one another.
The FCA has been clear that firms continue to demonstrate weaknesses in their approach to outcomes monitoring. This is an observation echoed by the work Square 4 has undertaken supporting firms to produce their annual Consumer Duty Board Reports. Outcomes monitoring is a vital component to enable firms to demonstrate they are meeting the Duty, and requires appropriate attention and focus.
Outcomes Monitoring Guide
At Square 4, our specialist consultants have been supporting our clients successfully develop, deliver, and implement robust, regulatory compliant Outcomes Monitoring Frameworks (OMF), Fair Value Assessments (FVA), MI, governance and control frameworks and other aspects of the FCA’s Consumer Duty agenda both during and after the implementation of the Duty. Through this activity, we have developed a comprehensive Outcomes Monitoring – A Good Practice Guide.
The purpose of this document is to help firms ensure that all regulatory expectations, rules, guidance, and industry best practices are effectively considered, evidenced, and governed appropriately. Ensuring a robust approach will enable firms to adequately demonstrate they are meeting their Consumer Duty obligations and have plans in place to continue improving customer outcomes on an ongoing basis.
The findings from recent FCA reviews make for uncomfortable reading and should be seen as a call to action for all firms. The regulator’s expectations are clear that all firms have a duty to act to deliver good outcomes for their customers, and outcomes monitoring plays a critical role in delivering and evidencing that objective.
From the work Square 4 have undertaken with our clients, it is apparent that there is still work to be done in order to meet the higher expectations of the Duty. Firms that have a holistic and comprehensive data-led OMF are likely to be considered as delivering good practice by the FCA. Those firms with weaknesses in data, have inadequate monitoring practices, are doing little to identify differential outcomes between customers, or are not taking action to mitigate customer harm, are unlikely to be meeting the requirements of the Duty.
In the ‘Consumer Duty – one year on’ webinar, the FCA were keen to point out that they are trying to be collaborative with firms and will take a proportionate approach to the Duty. Firms will likely have a chance to fix any issues the regulator identifies. Nevertheless, if the issues identified are not resolved promptly, then those firms can expect regulatory intervention.
Coupled with the backdrop of potential further FCA reviews of the later life lending market, the ever evolving regulatory landscape, and the post implementation thematic assessment of annual Consumer Duty Board Reports, it is imperative that firms critically review their OMFs, inclusive of the associated data, and ensure that action is taken against the issues identified internally, or raised in the FCA reviews.
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