Regulation is a constant in the banking industry, with new requirements regularly being introduced.
The challenge lies in interpreting and actioning these regulations, and with the UK Consumer Duty regulation approaching, it's clear that financial institutions in the UK need to be proactive.
What is Consumer Duty?
The FCA’s proposed Consumer Duty regulation requires firms to prioritise their customers’ interests by focusing on delivering “good outcomes”.
According to the regulation, “good outcomes” are based on three core principles: acting in good faith, supporting financial objectives and avoiding foreseeable harm. In other words, lenders must act in their customers’ best interests by providing tailored products and services, communicating transparently and avoiding any potential harm.
- Starting on July 31, 2023, every lender will be required to define and monitor what constitutes good outcomes for their customers.
- From September 2023, the FCA will be reaching out to a select number of firms to investigate what has changed (or not) in the gap analysis.
- Beginning in January 2024, lenders will be asked for dashboard samples with supporting data demonstrating avoidance of harm.
The regulation will continue to evolve throughout these phases. Based on the findings, the FCA could recommend further changes to improve compliance with the Duty through 2025.
What does this mean for lenders in the UK?
According to PwC, the new regulation brings a shift from a product-centric approach to a customer-centric approach with greater transparency and clearer communication required from firms. This means that lenders will need to be focused on the needs of their customers and more diligent in their product design, marketing and communication strategies.
Institutions may need to collaborate more closely with regulators and consumer groups, invest in technology and analytics, and review their product and service offerings to meet the requirements of the new regulation.
“The scale and breadth of the regulator’s new requirements, especially the granular nature of the supporting data they are seeking, means that technology will play an increasingly important role in both the gathering and analysis of data within any firm.”
—Ian Ody, Director at PwC.
Tips to Prepare Your Institution
Interpreting the Duty can be complex, and it’s up to individual lenders how they will implement the guidance.
As your FI prepares to conform to the new requirements, here are some actions to consider:
Define what it means for you: Step one should be understanding what your institution needs to accomplish in order to achieve compliance. This will be based on what makes sense for your customers, your products and your institution, and it can be challenging, especially for some of the Duty’s more subjective terms.
Make a change management plan: Once you’ve interpreted the Duty, define what alterations to processes or policies are required. Whether that’s improving product matching to customers, better profiling, documentation or changing who you serve and what you offer, identify the change management your institution could be facing.
Get your data in order: Data is key in evidencing compliance, but legacy technology, siloed data and manual processes make it difficult to access the right information. Workflow automation and streamlined data are pivotal for faster collection and reporting and reducing the risk of inaccurate or incomplete data sets.
Simplify and automate reporting: There’s no doubt this Duty will involve more frequent reporting and disclosure of information, as well as greater engagement with customer feedback. Clear reports and dashboards provide a single source of truth and a 360-degree picture of your customer, meaning you can also track and monitor compliance on an ongoing basis.
Be ready to adapt to more changes: Having agile, scalable technology in place so you can pivot when needed is crucial to adapting future regulation or making changes as the Duty evolves.
You define the ‘what’; nCino enables the ‘how’.
It’s clear that retail and SME lenders need to be proactive in preparing for Consumer Duty implementation. Lenders already on nCino are well-positioned to access and report on the data needed to evidence their compliance to the FCA, but FIs must define their data and what compliance looks like for them.
Once data requirements are defined, platforms like nCino can provide a single platform solution for all customer data, simplifying data collection, reporting and compliance. As a pioneer in cloud banking, nCino’s deep domain expertise and industry knowledge make us an ideal partner to help financial institutions navigate and adapt to changing laws and regulatory shifts.
For further guidance on interpreting the Consumer Duty and defining data requirements, read PwC’s Consumer Duty – Preparing for July 2023 and Beyond.
To learn more about a cloud banking platform that enables clearer reporting, data collection and compliance, explore nCino.
