Simon Collins: The FCA’s retail supervision moves up a gear

In all my articles in 2024, I commented on the increased level of supervisory activity being undertaken by the FCA in the retail sector. That certainly looks set to continue into 2025 as the follow-up to the work the FCA has been doing around the Consumer Duty begins to move up a gear.

Prior to Christmas, the FCA gave a number of updates and feedback, particularly after reviewing a range of firms’ approach to the first Annual Board Report.

There were some positive comments made by the FCA around culture and reports featuring analysis of different customer types, including those with characteristics of vulnerability. But there were also some areas requiring improvement.

For instance, some firms did not have sufficient data quality to justify conclusions to give boards and governing bodies adequate assurance that they are meeting their obligations under the Duty. Some reports did not contain evidence that an appropriate amount and types of information had been shared between the firm and third parties across the distribution chain.

The FCA continues to be extremely focused on the customer journey (particularly where this journey is heavily digitalised), the role of all firms involved in the journey, the way those firms communicate with customers and each other, and the level of appropriate oversight.

The FCA continues to be extremely focused on the customer journey, particularly where this journey is heavily digitalised

With some of the work we have undertaken over the last 12 months, there have been concerns in some of our reviews that customers are not getting the appropriate solutions, which may be too predetermined and not taking in to account sufficient individual customer circumstances or consideration of vulnerabilities.

These issues can then challenge the effectiveness of the firm’s risk and compliance function, and the quality of its three lines of defence. Ultimately, this can lead to questions about the role of individual senior managers with responsibility for customer outcomes given the increased expectation for constantly improving standards.

The FCA has a number of tools within its supervisory armoury that we see being deployed, including attestations from senior managers to ensure any conduct issues have been resolved. Another approach is the “one day” follow-up visit to a request for information, typically on a themed basis.

So, what sort of things could you expect in a one-day focused feedback session following, for instance, the earlier submission of a small number of client files to the regulator?

Well, areas such as a discussion around the firm’s target market and product(s) is a good starting point. That may then lead onto the provision of a customer journey ‘walkthrough’ from initial contact or re-contact through to the customer communications sent for new and additional investment or borrowing, particularly around costs.

Where this includes any digital journeys, the FCA is likely to want to understand how the customer is involved and what they have to do:

• A walkthrough of how a customer completes any fact-find information, including the use of any income and expenditure (I&E) tools and how the system the firm uses calculates the disposable income.
• How customers are signposted to non-digital contact details and any ‘help’ information, or whether the whole journey is adviser led and “F2F”.
• Whether journeys differ depending on the specific product or service.
• How any webchat/chatbot operates and how a customer logs out.

Of course, there will be discussion around outcomes testing completed for retail customers and how good outcomes are received and analysed. Ongoing monitoring of the existing customer base and the subsequent actions taken is likely to be an important topic of conversation linked to the oversight and quality assurance activity undertaken.

The FCA has a number of tools within its supervisory armoury that we see being deployed

How any marketing activity is undertaken and how financial promotions are designed and reviewed is likely to feature and, unsurprisingly, how the firm has reviewed complaints over the last few years and what activities have been carried out as a result to ensure ongoing good outcomes. Management information and board governance covering this area will, of course, be critical.

This is not necessarily an exhaustive summary of discussion topics, but it picks up on the important areas of interest the FCA will have and getting a better understanding from those individuals likely to be involved in the visit.

Depending on the size and scale of the firm, these will be individuals such as senior manager(s) who have overall responsibility for customer outcomes, representatives from customer service and proposition, compliance/risk, tech and operations, finance or similar who understand and can demonstrate how your systems operate and how the journeys work.

Getting the FCA to fully understand how you operate and how you interact with your customers will be key to a successful visit.

Simon Collins is managing director, regulatory, at Konexo, a division of Eversheds Sutherland