How to approach MI for The Consumer Duty

In July 2023, the FCA’s new Consumer Duty regulations will impose extended obligations to ensure good outcomes for customers. To achieve this firms will need to be measuring and tracking customer outcomes throughout their journey and using the data to make improvements, as well as reporting to the regulator on an annual basis. For many firms this will mean enhancing management information (MI) systems so that they are up to the task.

This is our fourth article in The BDO Consumer Duty Series, helping clients to develop their approach to implementation. Here we look at the Management Information (MI) requirements of The Consumer Duty.

While many firms already have MI to help them assess conduct risk or treating customers fairly, we are hearing from our clients that developing MI to satisfy the conditions of The Consumer Duty is still uncertain for them. 

MI is a term that is used a lot. And in this article, we explore what it means, how to approach developing MI and how to apply this to the new Consumer Duty. 

What is MI in relation to The Consumer Duty?

Management Information is where data is used to provide insight to help better understand organisational performance. In the context of The Consumer Duty, this means how the firm is performing in delivering good consumer outcomes. Where good outcomes are not being achieved, MI should also help to reveal ‘why’, so that improvements can be made.

A risk management approach also complements an MI framework. With good outcomes defined, firms can then identify threats, establish thresholds in line with The Consumer Duty and risk appetite, put in place mitigating actions, and track on an on-going basis.

The FCA Consumer Duty expects firms to:

• Monitor and regularly review the outcomes that customers are experiencing
• Identify sources of poor outcomes and harm
• Act to better enable consumers to achieve good outcome, including making changes to products and services

There is no one-size-fits-all, MI should be appropriate to the size and range of the firm ensuring all products, services, touch points and customer types are covered.

How to start an MI project?

The start point for designing MI is to carefully define what is to be measured. One of the marked differences of The Consumer Duty is the responsibility of firms to achieve good outcomes and not just to demonstrate that certain processes have been followed. Articulating outcomes as opposed to processes will demand thought, however this is critical to developing effective consumer duty MI.

Once the desired outcomes have been captured; at all stages, for all target customers, across all products and services, firms can then start to develop their MI framework. This will include the sources of data that will be used, the tests that will be used to measure, and how these will be captured and reported.

Who is MI for?

Different groups will have different requirements from MI. While it may be derived from the same sources and core analyses, how it is presented should be specialised to its purpose.

MI is critical to governance and executive decision making. Boards are most likely to want a more aggregated view to assess organisational performance, show trends, and so they can be satisfied in the management of risks and issues. In addition, there is a requirement annually that boards review whether consumers are receiving outcomes consistent with The Consumer Duty.

Others in the business are likely to want a more segmented view, whether specific to a senior manager function or to risk, audit, or quality. Dashboards and analytical tools will be useful for those who are monitoring so that they can dive deeper into the data. Greater granularity too, such as capturing root cause analysis and detailing remediation actions.

Maintaining records of MI, analysis, issues, and actions is important in demonstrating active and ongoing monitoring of consumer outcomes.

What data can be used for Consumer Duty MI?

CP 21/36 suggests several sources of data that can be used to derive MI such as complaints data, persistency, and claims ratios.

As another example, the frequency of product switching is a source of data could be used as an indicator of outcomes. A high frequency of switching might indicate inappropriate advice with a low frequency indicating ‘sludge’ practices that impede customers from making a change. In both cases the data is used as an indicator, with further analysis used to reveal causality.

There can be a tendency to derive MI only from the data available rather than from what is needed to be measured. Where existing sources do not fulfil measurement of all defined outcomes, gaps need to be addressed. This may mean that systems or processes need to be developed to capture new data.

Harnessing technology

Digitalisation now gives firms much richer sources of information. Social media gives real-time and highly qualitative data and new techniques like transformer-based language models can analyse sentiment from voice and text. Digitisation of data also means that firms can start to do more analysis and detect trends more quickly. These advancements mean that firms can start to respond to leading indicators rather than lagging indicators such as historic complaints data or past business reviews.

Customer data may sit across different platforms and in different formats, make tracking customers and using the data challenging. A firm’s compliance with the Consumer Duty is likely to demand a single, coherent, and up to date view of every customer. Achieving this may require enhancements to Customer Relationships Management tools. AI can also now be used to better manage customer data.

Do Consumer Duty systems developments qualify for tax relief?

For most firms there will be investment required to meet the requirements of The Consumer Duty, either in deploying new MI tools or in enhancing what already exists. In many instances, Consumer Duty related systems development will qualify for R&D tax credits – helping to offset the cost of compliance with the new rules.