UKGI Compliance Manual

Decision Making

Decision making at all levels gives an indication of the culture within a firm. It refers to any situation where an individual is expected to make a decision that could have an impact, directly or indirectly, on delivery of good consumer outcomes.

When making a decision, the interests of one group of customers should be properly balanced against other groups of customers and shareholders.

  • The Regulator expects firms and their staff to bear in mind the likely customer impact when reaching decisions – whether these are decisions made at the highest level within the firm or on a day-to-day basis.
  • Firms should encourage staff to challenge decisions where it is felt these:
    • do not lead to the fair treatment of, or good outcomes for, customers; or
    • do not put the customer at the heart of a firm’s culture; or
    • do not seek to operate in the customers’ best interests.
  • Firms should seek and respond to customer feedback.

Good Practice Examples

  • Before expanding into a new product area, reviewing staffing levels and factors in sufficient time to allow staff training so that customers receive continuing high levels of customer service.
  • Introducing formal approval policies for business processes such as product development, financial promotions etc.
  • Ensuring appropriate due diligence is undertaken on product providers.
  • Having an organisation structure which sets out clear reporting lines and spans of control which allow appropriate supervision.
  • Setting clear authority levels and competency sign off processes.
  • Complaints are fully and impartially investigated, and complaints information is regularly reviewed to identify any issues or trends with particular regard to the Consumer Duty outcomes. Where the need for improvement is identified, appropriate action is taken to address the issues in good time.
  • Proactive customer engagement to mitigate the exposure to the customer where errors or omissions are identified which may affect the customers’ ability to claim benefits.

Consumer Duty Champion

A firms governing body is ultimately responsible for ensuring that the firm has adequate controls in relation to delivering good customer outcomes and that its decisions are made in the best interests of the customer. The FCA expect firms to have a champion at board (or equivalent governing body) level who along with the Chair and the CEO, ensures that the Duty is being discussed regularly and raised in all relevant discussions.

Where firms are of a sufficient size to warrant the appointment of Non-Executive or Independent Non-Executive Directors (INED), the Champion should be an INED where possible. More information on the role of non-executive directors can be found in Section H.1.3. Small firms may appoint someone within the firms Senior Management team as its Consumer Duty Champion, however this must be an individual with appropriate skills, knowledge, expertise and authority to challenge Senior Management on whether they are acting to deliver good customer outcomes and whether business decisions are made in the best interests of the customer.

Systems and Controls

Appropriate systems and controls should be indicative of a well-run business which has fully understood where it might present risks to the customer in terms of the range of products which it offers and the size and complexity of its operations.

The various processes themselves are likely to provide good evidence of how a firm approached the delivery of good customer outcomes; one process may impact on a number of outcomes (for example, having a clear processes for customer transactions can impact on the customer understanding outcome as well as the customer support outcome).

It is important that systems and controls are proportionate. For example, firms which deal mainly with consumers, handle large amounts of business and advise upon Protection products are likely, from a compliance perspective, to present a greater risk than a small firm, dealing with a lower number of customers and advising only commercial customers. In such cases, the firm’s systems and controls should be commensurate with the risk which the business may present.

More information on management systems and controls can be found in Chapter A of this manual (Sections 11-21)

Good Practice Examples

  • Having written procedures which cover both sales and post sales activities (e.g., cancellations, MTAs, claims, complaints etc.), ensuring these procedures are reviewed and amended as appropriate and that copies are made available to relevant staff.
  • Embedding a Vulnerable Customers Policy.
  • Ensuring that the firm’s client Terms of Business, website and letter suite are regularly reviewed and updated, and that they properly reflect and clearly explain the arrangements which apply.
  • Reviewing providers on a regular basis and ensuring adequate consideration is given to solvency ratings, claims, service, product range and benefits, as well as the levels of premium charged, to ensure the business has access to a range of products which are sufficient to satisfy relevant customer requirements.
  • Maintaining a fee policy and process for properly disclosing fees and charges to the customer and ensuring these are reasonable and represent fair value.
  • Having appropriate record keeping procedures in place which take account of any data protection considerations (i.e., confidentiality).
  • Maintaining a Conflicts of Interest Policy and register (see H.4.2).
  • Having appropriate allocation of responsibilities, monitoring and risk management arrangements

Firms should bear in mind that systems and processes should be regularly reviewed to ensure they continue to deliver the right outcomes for customers.

Management Information (MI)

MI is a key part of a firm’s conduct risk framework and enables a firm to manage its customer risks and to identify poor performance. Appropriate MI needs to be available to all levels of management to demonstrate that the customer risks they are responsible for are being managed appropriately, and that they are delivering good consumer outcomes.

Customer feedback can provide valuable information on the effectiveness of controls and the delivery of fair outcomes for consumers. The regular review of MI is vital to embedding a customer focused culture.

The FCA expects a firm to have in place the controls needed to ensure it delivers good outcomes for customers and to have the necessary management information to ensure these controls are effective. This would involve reviewing the firm’s processes (sales, T&C, complaints, etc.) to determine what MI can be collated and reviewed by the firm to monitor the continued effectiveness of such processes.

Good Practice Examples

  • A firm establishes a Senior Management Conduct Review Meeting to review conduct metrics and to identify areas for improvement / development.
  • A firm regularly reviews its T&C MI in conjunction with complaints and feedback gathered from customers to monitor and act upon any issues identified, with particular reference to suitability of advice, product expectations and customer understanding.
  • A firm uses MI from its software systems to monitor which insurers are used for particular product lines and which advisers recommend which policies. The data is reviewed can help to ensure business is placed as expected. Where any anomalies are identified these are investigated through file reviews to determine whether the advice given was suitable and took account of the customer’s circumstances. Any issues identified are then addressed.
  • A firm uses a range of MI in relation to claims including claims paid, repudiations and claims not progressed, and assesses these against different groups of customer characteristics to determine if different groups of customers receive different outcomes in the claims process.
  • A firm includes a review of conduct risk and consumer outcomes within its Annual Compliance Plan and uses MI to ensure ongoing monitoring and reporting at a senior level.  CORE05 is a template Annual Compliance Plan and CORE06 an Annual Compliance Review template.
  • On a quarterly basis, a firm contacts a random selection of policyholders who have made claims to establish if the policy performed in the way in which they had expected and acts on any issues or trends identified.

Further guidance on the type and nature of the conduct MI we recommend a firm reviews to demonstrate the delivery of good customer outcomes can be found in Section H.3.

Section H.4 provides more detail on delivering good customer outcomes in the business cycle.

Annual Board Report

In addition to the firms on-going governance arrangements. The Consumer Duty also requires that an annual written assessment to be produced and approved by the firms governing body which details whether the firm is delivering good outcomes for customers which are consistent with the requirements of the Consumer Duty and how the firms future business strategy is consistent with acting to deliver good outcomes under the Duty.

A firms’ governing body should review and approve the firm’s assessment of whether it is delivering good outcomes for its customers (which are consistent with the required outcomes under the Duty) and agree any further action required, at least annually. This report must be substantiated with the results of appropriate monitoring and management information reviews and any actions already taken within the reporting period to address any risks or issues . A copy of the report, and any supporting MI, must be provided to the FCA on request.