What does a data-driven regulator expect from you? – Finextra

October 7, 2022 News Editor

Speech automation RegTech firm, Aveni’s, recent webinar addressed the new types of data the Financial Conduct Authority (FCA) might ask for under Consumer Duty regulations. The UK regulator has placed considerable emphasis on the use of data when determining whether firms are providing good outcomes for their customers and ensuring their customers have a good understanding of the products and services they’re being sold.

Expert insight and commentary was provided by Aveni’s panelists which included Nicola Anderson, CEO of
FinTech Scotland and former-FCA senior leader, Alison Gay, consultant at
the lang cat and former FCA policy adviser, John Gill, Chair of the Audit & Risk committee at
Quilter Investment Platform, and Joseph Twigg, CEO
Aveni.

The session covered everything from what regulatory supervision looks like now, and how it’ll change under Consumer Duty, to the challenges around data sharing and the technologies firms have at their disposal to meet data-focused regulatory expectations. Here are 5 key takeaways:

Current FCA supervision already takes data into account but new Consumer Duty regulation will give firms an opportunity to take ownership of data-driven innovation.

The requirement from the FCA to ask for data as part of its regulatory regime is not new but the types and quantity of data, the way in which it is reviewed, and general emphasis on data-led evidence is, without question, changing. Up to now, there has been a focus on Treating Customers Fairly (TCF), and conduct regulation has become much more prominent but with Consumer Duty we can see another step change from the FCA.

Current oversight focusses on supervisors pressing to understand how firms were thinking about good consumer outcomes and if there is a risk such as PPI or mis-selling, the supervisor would want to understand why and how firms thought it was reasonable to approach things in that way.

The types of information requested by the FCA today includes board packs, management information, how senior leaders ensure the outcomes being delivered for customers are good and if they’re using the data and information available to them to continually improve those outcomes.

With the evolution of data and technology, Consumer Duty allows firms to take ownership of innovation and better outcomes for consumers that the FCA is looking for. It provides an excellent opportunity for firms to place data-driven technologies at the heart of their operating models, leading to organisation-wide improvements in customer experience, product and service development, training, coaching, sales and risk assurance.

Consumer Duty will see a step-change in the type and volume of information being requested from firms by the FCA.

The FCA is keen to address behaviour that is legal but ‘not right’, targeting firms who are sticking to the rules but still engaging in activities that are questionable. Firms need to bear this in mind when thinking about the data they need to prove good outcomes and that the consumer sits at the heart of what they’re doing.

Data that firms need to collect could include:

Internal data. Data on your customers, who you sell to, who your target market is, who’s leaving/joining and why. Are certain customers paying more/less, are they receiving the appropriate level of service or benefit relative to what they’re paying etc
Customer behaviour. Data on how people are interacting with your organisation, before, during and after they become a customer. For example, what is the experience like during a front-end website interaction, are there any issues for vulnerable customers or people with accessibility issues?
External research, bespoke research. Commission research to inform your organisation’s actions and processes or use existing research such as the FCA’s Financial Lives research.
Your own staff. Do you have the processes in place that if a member of staff sees an issue, they can highlight it and build it into existing processes, so your firm can learn from internal feedback?
Share information with others in the distribution chain. Under Consumer Duty, there is a greater emphasis on sharing data throughout the distribution chain. For example, distributors will need to provide information on who they’re selling products to and customer outcomes to manufacturers.

The big challenge for firms now is how they’re going to efficiently monitor the data – over time and across multiple channels – that will prove the efficacy of their products and services.

Most firms are clear they’re on a journey from an internal set of score cards to something that’s more externally justifiable. They’re clear about the ‘what’, but not so clear about how they’ll achieve this. Firms will need to get clarity soon as the deadline to agree implementation plans for Consumer Duty is next month.

Sharing data, and visibility into other parts of the value chain to be able to prove good outcomes will be absolutely key to meeting regulatory expectations. Practically speaking, this is going to be a challenge for firms and their partners. For example, if you’re an investment platform with thousands of IFAs, efficiently and systematically gathering data from them and their customers and being able to analyse it in a meaningful way will be difficult.

The volume of data firms have access to has grown dramatically. Companies are using social media feedback to inform product decisions, they’re leveraging data from open banking to derive deeper insights into customer behaviour, developing products and services that’ll work best for them. A data strategy aligned to product development will be critical under Consumer Duty as the FCA is likely to ask how firms are using the data they have access to, to inform product and service development and why.

Consumer Duty is high on Audit & Risk committees’ agendas but the practical details aren’t clear.

The importance of Consumer Duty is clear at board level and appointing a Consumer Duty champion is a priority. There is, however, an underestimate between where companies are today versus where they’ll need to be by April next year when they’ll need to start sharing data across the value chain. It will be a hard shift to get to that state and to maneuver the board into a position where they’re comfortable seeing the data come through in an appropriate way. Boards will need to be realistic, themes and issues will emerge over time, years even, and they’ll need to be comfortable explaining the data and trends to the regulator across this timeframe.

Open banking and AI-driven speech automation technologies will be critical for firms to meet Consumer Duty data-requirements in an efficient and valuable way.

Using platforms that have given thought and consideration to the new regulatory data-demands such as identifying customers in vulnerable situations, conduct and complaints risks, and being able to feed that insight back into the different areas of the organisation for continuous improvement provides a unique opportunity for firms.

Being able to understand how customer vulnerability changes over time and to monitor and identify these occurrences so products and services are adjusted appropriately is of critical importance. Consumer Duty places more emphasis on monitoring over time and to understand if there are changes in circumstances that impact the efficacy of a product or service. AI-driven speech analytics technology can provide a ‘Machine Line of Defence’ allowing firms to do just that, as well as triage high priority cases to internal human teams for faster review and remedial action.

Open banking has also accelerated data insights recently and the data it enables firms to access such as sharp insights into the quotations around affordability will be of huge value to firms under growing supervision, allowing them to develop good solutions and advice from affordability data.

Innovations in product governance technology will also help firms manage and assess the effectiveness of their products and services across the customer’s lifetime. These platforms can consistently capture all the processes, documentation and communication around products, then align new Consumer Duty definitions to every path of each journey, giving firms a much better handle on what they’re selling to customers and the outcomes they achieve.

Want to learn more about what a data-driven regulator expects from you?

>>Watch the full webinar replay here