Firms told to “speed up” in relation to Consumer Duty: How can data and analytics help?

With all eyes on the introduction of the new Consumer Duty regulation this July, many businesses operating across the financial services sector need to “speed up” consumer protection preparations. This was one of the leading messages from Sheldon Mills, FCA executive director for consumers and competition, as some lag behind in making the required changes. 

According to PWC, there are five key challenges that firms need to overcome if they are to avoid falling foul of the regulator.

Successfully defining and monitoring good customer outcomes: This will involve developing a robust and reliable framework, introducing new governance to review data, flag concerns and enable swift action to be taken to avoid harm. 

Understanding subjective terms: Organisations need to be clear on the subjective terms, such as ‘foreseeable harm’ and ‘fair value’, and what they mean in practice. All processes and products will need to meet the required standard, so being clear from the outset is essential. 

Taking accountability: Almost every layer of an organisation will be impacted by the new regulation, with many having to facilitate additional staff training and introducing new accountability structures.

Empowering consumers: At every stage of their financial journey, customers need to feel supported and confident that the decisions being made are in their best financial interest. This will involve establishing clear communication channels, as well as sharing timely updates and flagging concerns around affordability before they spiral. 

The fifth challenge - and main focus of this blog - is around data.

Access to real time, accurate data will become even more important following the introduction of the Consumer Duty regulation - especially when it comes to monitoring customers to ensure positive outcomes.

In fact, the rise of open banking and rapid digitisation of the sector is already enabling banks and lenders to build a more complete and accurate understanding of their customers' true financial position. Previously, these organisations relied on customers providing a number of different documents, from paper payslips to proof of monthly outgoings. Once collated, this information would be used to inform a decision on the best course of action. However, this could take weeks and there was always the risk that a person’s financial situation could dramatically change during this time. 

In light of the Consumer Duty regulation, banks should consider deploying more innovative, scalable solutions that are designed to be agile and efficient, harnessing the data at their disposal. 

These solutions can open up endless possibilities, enabling organisations to analyse this rich pool of data. Leveraging artificial intelligence (AI), machine learning (ML) and cloud analytics will enable banks to then continuously monitor customer accounts, automatically taking certain action should the data say it’s required. 

For example, should the AI detect a sudden change in a customer’s spending patterns, this information would be reviewed against multiple other data points. A decision would then be made around whether or not that person’s level of affordability had changed. 

Considering the ethics 

Of course, firms also need to be able to prove that every decision relating to their customers has been made fairly and is free from bias. With the right technology in place, banks can enable their analysts to check for potential bias within their data and algorithms at a much earlier stage in the development process. This is essential for those organisations seeking to drive efficiency, as well as preventing bias from subconsciously being built into their models.