SMCR Now! Episode 5: Jon Ellis, Consumer Duty Expert

Welcome to another episode of SMCR NOW, this series is exploring the way in which the Senior Managers and Certification Regime (SMCR) is changing the way that businesses operate. SMCR applies across the financial services sector. It puts greater emphasis on the personal conduct of senior managers and increases accountability for anyone involved in regulated work. Now, separately, new rules over consumer Duty have just come into Force. These set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first. So, how do they work in tandem with SMCR rules?

Today, we’re joined by Jon Ellis, a business consultant who advises companies on compliance issues.

CONSUMER DUTY IS HERE. WHY IS IT IMPORTANT?

The Consumer Duty’s significance is deeply rooted in its comprehensive reach and scale. It’s probably best to consider the actual breadth and scale of the regulation. It touches almost every part of a firm. This means it has significant implications because of its vast scope, making its implementation a complex task for many. From the FCA’s perspective, it’s also very important because it is for them a flagship piece of Regulation that follows on from SMCR but probably has an even higher profile. It’s about ensuring that firms, regardless of their size, prioritise their customers, especially the vulnerable ones, while aiming for good outcomes for all. The regulation is designed to be all-encompassing, ensuring that no firm can overlook its responsibilities. The FCA’s emphasis on this regulation underscores its importance in the financial landscape.

IT’S ARGUED THIS IS ABOUT PROTECTING VULNERABLE CONSUMERS. WHAT’S YOUR VIEW?

At the very core of this regulation is the protection of vulnerable customers. Financial Services can be deeply complex, and there are many people for whom it is a challenge to ensure that they are getting the services, products, services that fit their needs. The Consumer Duty is about ensuring good outcomes for all customers. However, the focus can be somewhat weakened because of the very broad nature of the push against all customers. But at the heart of this, for me, it is all about vulnerable customers. The complexity of financial services means that many individuals can easily be left behind or not adequately served. This regulation seeks to address that gap, ensuring that everyone, especially the most vulnerable, is catered for.

HOW WILL SMCR WORK ALONGSIDE CONSUMER DUTY?

The Consumer Duty essentially focuses on outcomes, specifically for consumer outcomes. These outcomes are how the FCA will measure whether firms are complying by that regulation. But take a step back. In order for those outcomes to be implemented within a firm, there needs to be roles and responsibilities clearly for ensuring that those things happen. The FCA and the cells make a very clear link between the ownership of the Consumer Duty across all areas of the firm and the Senior Management roles and responsibilities required to make those happen. This interconnectedness ensures that there’s a clear path from regulation to implementation, with every senior manager being held accountable.

WHAT ARE THE PRIORITIES FOR BECOMING CONSUMER DUTY COMPLIANT? IS SPEEDY IMPLEMENTATION MORE CRUCIAL THAN QUALITY?

Timing is important for that. The end of July just passed, so a few days ago, the consumer Duty, in most guises, became a reality for firms. However, there is a strong emphasis from the FCA to not make this what they would call a tick box exercise. It’s about embedding within firms an almost culture change that means that every part of the firm is focused on good outcomes for consumers, even if they’re not actually consumer-focused facing roles. This cultural shift is not just about ticking boxes but genuinely putting the consumer at the forefront of all operations.

HOW WILL DIFFERENT COMPANIES APPROACH IMPLEMENTING CONSUMER DUTY, AND WHAT RISKS ARE INVOLVED?

Firms should now take a very pragmatic approach to this. By focusing very clearly on Consumer outcomes and understanding the measures applied against those, they can identify gaps and understand what they might need to do to be fully compliant. The risk is that Consumer Duty could become a compliance department-only exercise. Compliance is front and center of this, but if you don’t have leadership from the top, then you won’t achieve the change that’s really meant by the FCA. The onus is on firms to ensure that this regulation is not just a task for the compliance department but a firmwide initiative.

WILL CONSUMER DUTY GIVE THE FCA MORE AUTHORITY? HOW MIGHT THEIR APPROACH CHANGE NOW IT’S LAW?

The FCA has been very smart in that what they’ve done is they’ve taken a very broad piece of Regulation and, instead of focusing on what firms might do in detail within their organisation, they’ve shown the spotlight on outputs, on outcomes. This outcome-focused approach makes it easier for the FCA to measure and enforce regulations. With limited resources, this approach allows the FCA to be more effective in its regulatory role. By focusing on outcomes, the FCA can more easily identify firms that are not meeting the required standards.

WITH BOTH SMCR AND CONSUMER DUTY IN PLACE, DO YOU FEEL THE FINANCIAL SERVICES INDUSTRY IS STRONGER? ARE YOU OPTIMISTIC ABOUT THE INDUSTRY’S REGULATORY FUTURE?

The introduction of Consumer Duty is a testament to the FCA’s intent to bring about sector-wide culture change. It brings absolute focus and clarity, and it shows the seriousness of intent of the FCA. Consumer Duty regulation is needed. It’s about sector-wide culture change. The importance of this regulation to consumers, especially the vulnerable segment, is paramount. The financial service sector has had its challenges in the past, and this regulation is a step towards addressing those issues and ensuring a brighter future for all consumers.

Browse previous episodes of SMCR Now! for more insights, more experiences, and more understanding of SMCR and how it applies across the regulated financial industry.

If it’s an area of compliance we can help you with just get in touch here and we can set up a time to talk.