The Next Industry Fix – Avoided?
Following the ‘Dear CEO’ letters issued to 20 of the largest adviser firms requesting information to support the FCA’s assessment of ongoing advice, there was anticipation in the industry expecting this to be the beginning of a large-scale remediation, similar to the Payment Protection Insurance remediation. After many months there has been a sigh of relief across the industry with the FCA reporting that it was less than 2% of cases where ‘no effort’ had been made to offer an annual review where it was due. These firms must take action to remediate customers and ensure their processes are robust. Is it ok though that for 15% of cases, some effort was made but the result was still no annual review for the customer either through a lack of response or a decline?
Why is it important?
Even though Consumer Duty is a new regime and we cannot retrospectively measure firms against these principles, the industry has been adhering to the Treating Customers Fairly (TCF) rules for nearly 20 years now where charging people for something they aren’t getting would not be considered as ‘fair’.
Going forward under Consumer Duty, one of the main aspects is to ensure value for customers throughout their relationship with a firm and the services provided. This can be best achieved through the ongoing advice process, reconnecting with customers, understanding their current circumstances, and establishing if anything has changed.
The value of advice therefore needs to be evidenced. Assessing existing products and investments and their suitability isn’t enough. An assessment of how the customer has benefited from the product including a justification of costs is required through a value assessment. Regardless of Consumer Duty or TCF, the fact that firms could have been charging for a service and not doing what they had promised would require some rectification activity to put it right.
What are the challenges with remediation?
When taking action to remediate and redress customers through an issue such as ongoing advice some key elements need to be thought through and carefully planned. They usually do not come without some challenges, so it is good practice to factor them into the planning and approach.
- Time and Resources
Planning for remediation activities can often lack dedicated resources that have the capability to understand project governance and requirements. This means that often SME resources are allocated as they have the experience and knowledge of the business areas and are completing the remediation tasks ‘side of desk’ alongside business-as-usual priorities. The problem with this is not only the project taking longer but it can lead to key considerations being missed. In our experience, this is fundamental to the reason why issues are not completely resolved with analysis being rushed or scenarios being missed, and due to the elongated timescales, it can often lead to more customers being affected the longer the issues remain unresolved.
- Scoping and Impact
Often, not enough time is allocated to understand the scope of the issue and the extent of customers that have been impacted. Before delving into data requests and data analysis we need to know more about the customer segments, how they need to be dealt with, whether the type of resolution needs to be different depending on this information, and a view of the different scenarios there are to determine the underlying cause of the issue and what type of fix will be needed.
- Quality of Data
Being able to pull the data for the relevant period or relevant customer segment and being able to view all underlying data fields to evaluate and assess the impact can be problematic. Data extracts can have a heavy reliance on IT to produce so there can be lead times in receiving the data and also difficulties in getting the data extract right, especially where legacy systems are in place. Using the right expertise, and dedicated resources with the capabilities needed to understand the problem, specify the data requirements, and who can liaise with technical resources will be beneficial.
- Turning off the tap
The issue will continue to evolve with more affected customers unless controls in the processes are reviewed, assessed, and action is taken to improve. It is important to take the opportunity to review the process holistically and ensure the design of the process and the placement of the controls are optimal keeping the process efficient and not causing any issues with bottlenecks or unnecessary handoffs. The controls should be designed in such a way that they are mitigating the risk they are in place for and adding value to the process.
- Customer Contact
Customers need to be contacted and informed about the issues and the actions that have been taken. It is possible that customers complained before a remediation project was initiated so it’s important to understand how those complaints have been handled. We need to determine if any changes are required to how they were previously redressed and assess that the customer has been treated fairly. Consideration of complaints handling going forward also needs to be agreed and the process managed to ensure consistency.
Our Remediation Framework
At Simplify we have a tried and tested approach to remediation projects that can be adapted according to the specific problem statement. We will work with our clients to ensure that there is robust project governance around all aspects of the project through to resolution and close down. Our framework considers the following areas:
Triage – We will investigate the size of the issue and the impact including any regulatory impacts or other third parties and will consider the financial and non-financial remediation requirements.
Scoping and Impact – We will ensure that the scope is clear including different customer segments and assess if any of the segments need to be treated differently such as vulnerable customers. We will determine the root cause before any action is taken.
Approach & Resolution – An approach will be developed aligned to reaching a resolution, supported by a detailed plan of activities including timescales, resources, and the communication requirements to customers and any third parties.
Closure – As part of the closure of the project we will ensure all issues have been resolved, and we will monitor and assess the effectiveness of the controls that have been implemented.
Conclusion
The outcome of the review, while not as damning as expected, some remediation activity is needed, and firms need to tighten up their processes around this and make sure their record-keeping and basic good practice elements are in place and should waste no time getting their affairs in order.
At Simplify Consulting, we have in-depth experience assessing and optimising processes, including focusing on process risk and controls and a strong delivery capability with proven success in leading remediation projects. Contact us today if we can help you.
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Jayne Brown
Lead Consultant
Let us know how we can help you by getting in touch today using [email protected]
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