<p class="p1"><strong>The Consumer Duty: The time for FinTech firms to act is now.</strong></p>
<p class="p3"><b>Heather Alleyne</b></p>
<p class="p4">Partner, Ernst &amp; Young LLP</p>
<p class="p3"><b>Tom Bull</b></p>
<p class="p4">Partner, Ernst &amp; Young LLP</p>
<p class="p6">In late July, the Financial Conduct Authority (FCA) announced the final rules for the new Consumer Duty (<a href="https://www.fca.org.uk/publication/policy/ps22-9.pdf"><span class="s1">PS22/9</span></a>), representing one of the largest regulatory shifts in financial services for over a decade. These new rules introduce a higher standard of conduct and create a clearer focus on customers’ interests. All of this is centred around getting to the heart of protecting and supporting customers to achieve their financial objectives and avoid foreseeable harm.</p>
<p class="p7">The FinTech industry has a track record of introducing innovative new propositions for customers and adapting rapidly to change. While much of this work has been highly customer-centric, the Consumer Duty raises the bar in terms of the regulator’s expectations of the emphasis put onto this area.<span class="Apple-converted-space"> </span></p>
<p class="p7">Released amongst a backdrop of increasing economic pressures and the rising cost of living, the FCA has endorsed this change as even more important. With accompanying phrases such as ending ‘rip-off charges and fees’ and a need to ‘focus on the real and diverse needs’ of customers, the regulator has set a clear tone from the top.</p>
<p class="p7">In our recently conducted <a href="https://www.ey.com/en_uk/financial-services/consumer-duty/how-financial-services-is-preparing-for-consumer-duty?mkt_tok=NTIwLVJYUC0wMDMAAAGF3061LvgK0SBIpS5j-dQUskDP6W4qsBC2ofADF7DBBIVYh2YzoCDUHLwx8FawPuz_IqPI3nXl_v0PkUK_6x3r"><span class="s1">Consumer duty readiness survey</span></a> across financial services,<span class="Apple-converted-space">  </span>94% of respondents stated that ‘they do not yet know what level of change is required’, to deliver against the FCA’s expectations. Firms now have as much clarity as they can expect from the regulator and need to focus on delivery.</p>
<p class="p7">As expected, the underlying final rules have not changed significantly since the last consultation. The biggest exception is the implementation deadline, which has been extended by three months to the end of July 2023 for new and existing products, and to the end of July 2024 for closed book products. However, any firm or individual applying for authorisation (and those applying to vary their permissions) will have to demonstrate that they can meet the requirements of the Consumer Duty, as they relate to them, from now on.</p>
<p class="p7">This is a clear signal from the FCA that firms need to take this seriously and a recognition that, for many, this will represent significant activity which will require iterative change.</p>
<p class="p7">The FCA extension comes with specific interim deadlines that firms will need to meet to demonstrate that sufficient progress is being made. A further indicator that FinTech firms need to make sure they keep up momentum and deliver against expectations.</p>
<p class="p7">This includes requirements for Boards (or equivalent management bodies), to set out and approve their implementation plan by the end of October 2022, and for all ‘manufacturers’ to complete their outcome assessments by April 2023, so that information is provided to distributors in a timely manner.</p>
<p class="p7">Since the first consultation, EY has been working with several firms to understand the implications of the duty on their businesses, assessing their current position and developing action-oriented plans.</p>
<p class="p7">What has become clear throughout these interactions is that firms recognise that, despite the complexity of the task at hand, the duty represents an opportunity to differentiate and unlock future value by orienting around the customer, moving away from tick-box compliance.</p>
<p class="p7">We have summarised our thoughts below on the final rules and steps FinTech firms can take as they prepare for implementation.</p>
<p class="p7"><b>Implementation deadline and what should firms prioritise</b></p>
<p class="p7">Firms should be making full use of the extensions provided, but also ensure that they do not lose sight of the task at hand. The FCA’s deadline for Board level sign-off on implementation plans by the end of October, will be a critical milestone. firms should be doubling efforts to challenge themselves that their plans will set them up for success, that they take account of the full scope of the duty and are proportionate for their business. Prioritisation centred around the customer will be key.</p>
<p class="p7"><b>Defining ‘what good looks like’</b></p>
<p class="p7">To date, some firms have found it difficult to articulate how their products and services deliver good outcomes, which has led to challenges in prioritising the areas that need the most focus. In our latest readiness survey, only 16% firms had defined what ’good outcomes‘ would be for their business and customers. The new rules provide tangible examples, giving firms a clear starting point on which to base their assessments. For example, ‘making people wait for so long for an answer that they give up’, does not meet the customer support requirements.</p>
<p class="p7">We have also observed challenges where elements of the duty are being managed in silos, resulting in well-intentioned approaches generating sub-par outcomes. To truly tailor their products and services, firms will need to improve their understanding of customer personas, how to meet the financial needs of these personas and how they monitor and react when these needs are not being met. There will also be instances where firms will need to consider specific, individual customer circumstances as part of this activity as well.</p>
<p class="p7">FinTech firms need to define ‘what good looks like’ for each of the four outcomes. Conducting an end-to-end holistic assessment focused on the customer is critical to understanding the product lifecycle and developing a monitoring approach.<span class="Apple-converted-space">  </span>We expect all FinTech firms will have customers who at some point experience vulnerability and will need to consider systems, processes and tailored customer support available.</p>
<p class="p7">They will also need to ensure that they have well documented governance and interpretation panels in place that will provide an overarching view across its business to ensure that customer treatment is consistent.</p>
<p class="p7"><b>Governance and accountability</b></p>
<p class="p7">The publication clearly states that Senior Managers are accountable for the outcomes their customers are experiencing, in line with their accountability under the Senior Managers and Certification Regime (SM&amp;CR).</p>
<p class="p7">The FCA has been explicit about the need to ensure an appropriate change in culture and behaviour. This onus is on the Board or the equivalent management body for embedding this across people management policies, including ongoing monitoring plans and performance management.</p>
<p class="p7">It will be crucial to set the ‘tone from the top’, with the FCA encouraging firms to adopt this approach via its proposed new ‘Champion at Board level’. This will ensure the duty is placed at the centre of the firm’s strategy and Board discussions.</p>
<p class="p7">The FCA has also confirmed the requirement for an annual report reviewed and approved by each firm’s Board, which assesses whether the firm is acting in line with the duty. The first Board report should be completed by end of July 2024, at the latest, within twelve months of the rules coming into force.</p>
<p class="p7"><b>Leveraging data and developing a technology led approach</b></p>
<p class="p7">The FCA is transforming to become a data-led regulator and expects the firms it supervises to take a similar approach. Unlocking meaningful data on customer activities to help inform customer understanding, improve customer experience, enhance decisioning and support the ongoing monitoring of outcomes will be key to the long-term successful implementation of the duty.</p>
<p class="p7">For FinTech firms, effective technology and data naturally sit at the heart of most business models.<span class="Apple-converted-space">  </span>These tools provide a range of opportunity to monitor processes, customer interactions and outcomes. The regulator will look to firms to deploy the tools available to them to serve customers’ interests including understanding the customer base, identifying patterns of emerging vulnerability, tracking performance against desired outcomes and ensuring effective governance.</p>
<p class="p7"><b>Next steps</b></p>
<p class="p7">The FCA’s publication signals the start of the countdown to implementation. Despite extensions, this remains a challenging timeframe given the scale of change needed. However, we believe that this is achievable, particularly for FinTech firms who are able to mobilise quickly and adopt in an agile fashion.</p>
<p class="p7">Firms should not delay in setting out realistic and action-oriented plans to achieve compliance for ‘day one’, as well as assessing the longer term, strategic opportunities beyond implementation.</p>
<p class="p7">Through driving meaningful improvements centred around the customer, FinTech firms will achieve better outcomes, secure customer loyalty and drive business growth as a result.</p>
<p class="p7"><b>For further insights, please join EY for our next Consumer Duty webinar on Wednesday, 5 October 2022.</b></p>
<p class="p7">We will hear from distinguished industry panellists, including Sheldon Mills, Executive Director of Competition and Consumer at the FCA, as we discuss the FCA’s approach to supervising the Consumer Duty, industry readiness and the impacts of the final rules and implementation deadline.</p>
<p class="p8"><span class="s2">Register here: <a href="https://info.ey.com/FSO-GB-Multiple-WB-2022-10-05-ConsumerDutywebinar_01aRegistration-FormPage.html?WT.mc_id=14568321&amp;AA.tsrc=ownedsocial"><span class="s1">https://info.ey.com/FSO-GB-Multiple-WB-2022-10-05-ConsumerDutywebinar_01aRegistration-FormPage.html?WT.mc_id=14568321&amp;AA.tsrc=ownedsocial</span></a></span></p>
<p class="p6"><i>The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.</i></p>

The Consumer Duty: The time for FinTech firms to act is now

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<div data-offset-key="8eskj-0-0">This week, Janine Hirt, CEO at Innovate Finance chats to Chris Locke, EMEIA Partner: UK Financial Services Transactions Diligence at EY where they discuss Chris' background, how the IPO market has changed over the years, the impact of COVID-19 on the IPO market, and much more!</div>
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Coffee with Innovate Finance – Season 2 – SPECIAL EPISODE – In conversation with EY

EY, May 2019.
<h4>Boards that drive the holistic and transformative adoption of AI can help their organizations own the consumer relationships of the future.</h4>
<p class="parent-of-selection-dropcap"><span class="selection-dropcap">A</span>I is disrupting a wide range of industries and new entrants to markets often realize competitive benefits in comparison to incumbents by their use of AI. At the same time, uncertainty in understanding and adopting AI at scale have placed many traditional consumer products and retail (CPR) organizations at risk of becoming irrelevant, <a class="hyperlink-text-link" href="https://www.ey.com/en_gl/consumer-products-retail/will-ai-connect-brands-to-consumers-or-create-a-chasm-between-them">as the way consumers engage with brands fundamentally shifts</a> to embrace new technologies, like AI.</p>
<p class="parent-of-hyperlink-text-link">With all the disruptive opportunities AI has the capacity to offer, boards, in particular, need to be able to contextualize the next wave of AI to transform and grow their business. Forward-looking boards are driving their organizations to employ the vast possibilities of AI to influence consumer behavior at scale and entrench early mover advantages. Boards also need to think of how else AI might impact the consumer relationship and play a critical role in making certain that <a class="hyperlink-text-link" href="https://www.ey.com/en_gl/news/2019/04/ey-announces-the-first-solution-designed-to-help-gauge-impact-and-trustworthiness-of-artificial-intelligence-systems">trust in AI</a> is a founding principle.</p>

<h4 class="parent-of-hyperlink-text-link">A look into the <a class="hyperlink-text-link" href="https://www.ey.com/en_gl/growth/eight-forces-that-will-shape-the-future-consumer">future consumer</a></h4>
Consumer engagement is undergoing a sea of change. Consumers who value time more than money are looking at AI to identify brands that reflect their ideals and way of life. Social trends – such as consumers wanting to become “better versions” of themselves or contributing to the betterment of society – present significant opportunities for AI to play a role in meeting these needs. As attitudes toward consumption change, AI can offer brands meaningful ways to promote sustainability or social good and connect with consumers on a deeper level. Conversely, consumers could use AI to steer clear of brands that are not reflective of their values. Boards can influence the role of AI technology in addressing this shift in consumer behaviour.
<h4>AI: building consumer relationships and business opportunities</h4>
AI is a powerful tool that can create new value propositions, starting with how it impacts the consumer journey. Product offerings curated by AI are in great demand by customers. The benefit for consumers include products recommended and designed according to their individual needs and preferences. Brands able to deliver on this expectation will elevate customer retention and loyalty.

Forward thinking boards realize that waiting until the technology is more mature for the organization to adopt AI in a holistic and transformative way will be outpaced by the competition. At the same time, boards that support their organizations – regardless of their digital maturity to date – to view AI with this lens of opportunity will ultimately be best able to differentiate their organizations in the eyes of their customers.
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<h4>More transparency and trust in AI</h4>
<p class="parent-of-hyperlink-text-link">AI can present itself as a strange, foreign concept. Can we trust AI to do what it is designed to do? How should organizations address such concerns? As trust is a critical element for every consumer experience, organizations need to <a class="hyperlink-text-link" href="https://www.ey.com/en_gl/digital/how-do-you-teach-ai-the-value-of-trust">build trust in AI</a> right from the start.</p>
Education and the understanding of AI’s current limitations will go a long way to imparting trust in the technology. More real-time monitoring of AI applications to check if they are performing within safe boundaries is necessary too. The risk profile (including ethics, social responsibility, accountability and reliability) of the AI application and its use case will help determine ways to tap its potential. To address the risks associated with discrimination and bias, technology teams will have to work around insufficient data and faulty algorithms. To lessen any perceived lack of humanity, design teams must acknowledge human psychology and behaviour.

Boards must acknowledge that AI is – in many ways – like human intelligence, whereby mistakes are often part of the learning process. Incorporating this expectation and consequent learnings into strategy and processes that will ultimately improve the AI journey will, in turn, lead to heightened trust.

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<h4>What’s next for boards?</h4>
The potential of AI is enormous, with so much more to come. Only boards that are willing to demonstrate curiosity and interest in the topic can meaningfully engage management on its benefit to the organization in the longer term. Boards need to understand what AI can bring to the table, and help their organizations transform those capabilities to innovate and grow.

Questions for the board to consider:
<ul>
 	<li>Does the board explore and understand how the organization is using AI to create competitive advantage and drive new value?</li>
 	<li>Which processes in your organization, when addressed by AI, could have the greatest impact on customer experience?</li>
 	<li>What is the board doing to challenge biases that may appear in the data the organization has collected?</li>
 	<li>Has the board challenged management to consider how it might publicly respond to ethical dilemmas and how it can achieve transparency, accountability and ethics with AI use?</li>
 	<li class="parent-of-hyperlink-text-link">Has the board reflected on the need for <a class="hyperlink-text-link" href="https://www.ey.com/en_gl/disruption/behavioral-design-megatrend">behavioural scientists</a> in the boardroom to design AI services in a human-centric way?</li>
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When your board champions AI, will you win the future consumer?

<p>EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.</p>
<p>EY refers to the global organization and may refer to one or more of the member firms of Ernst &amp; Young Global Limited, each of which is a separate legal entity. Ernst &amp; Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.</p>
<p>EY material on this page has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.</p>


EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization and may refer to one or more of the member firms of Ernst &amp; Young Global Limited, each of which is a separate legal entity. Ernst &amp; Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

EY material on this page has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

Global Chairman & CEO, EY

Mark Weinberger

Managing Partner, UK Financial Services, EY

<p>Omar leads EY's Financial Services business in the UK, and is responsible for a team of over 200 partners and 4000 staff dedicated to serving the Financial Services industry. Omar joined EY in 2001 and was admitted to the partnership in 2006. He previously led the UK Financial Services Banking Consulting business, and was UK Banking and Capital Markets Leader from 2012. Omar is responsible for some of EY’s largest clients.</p>
