Driving Consumer Duty: Data Quality Mistakes and What We Can Learn

 Historically, firms were able to get away with poor quality data, filled with inconsistencies, inaccuracies, and gaps, meaning subsequent decisions were uninformed, un-evidenced, and rarely tackled the problem at hand. On the contrary, high-quality data, correctly collected and regularly updated, enables firms to make important decisions more relevant and accurate. In turn, relevant and accurate decisions are more inclined to drive good outcomes, not just for consumers but for the whole firm as well.

Recent events highlight the urgent need for decisive measures. The Financial Conduct Authority (FCA) is intensifying its investigations, especially following the motor finance misconduct scandal. Companies engaged in dubious practices are now under close examination, as the FCA actively seeks out those falling short in delivering positive outcomes for consumers.

How does data support Consumer Duty? 

1. Knowing Your Customers

Consumer Duty requires firms to have a deep understanding of their customers, including their needs, circumstances, and vulnerabilities. Firms can make observations and categorise customers based on demographics, financial history, risk tolerance and, with enough high-quality data, even behavioural patterns at a single customer view level, or step up a level and discover trends across your customer base. This data allows firms to tailor products and services to their customer needs at the touch of a button, or limit financial products to customers with relevant financial knowledge. Data quality, particularly accuracy and quality of customer information, helps to target your products and services to the right customer base at the right time, avoiding the potential for harm.

2. Anticipating and Preventing Harm

Consumer Duty places an emphasis on identification and prevention of harm to a firm’s consumers. For a firm to tackle this there is a need to analyse consumer behaviour to predict or highlight where or when a potential issue will arise and actively intervene before it affects the consumer. An example of this would be erratic spending by a customer, which may signal financial distress. Firms can act on these insights by reaching out and offering support, potentially preventing defaults or worse financial outcomes. Good data forms a solid support system for consumers and ensures they are not ignored when at their most vulnerable.

3. Delivering Fair Value

Consumer Duty requires firms to offer products and services that provide fair value. This means ensuring costs are transparent, benefits are clearly communicated, and prices are aligned with the customer's financial situation. Again, data plays a crucial role. Accurate data on product costs, fees, and customer demographics allows firms to price products appropriately, making the cost more transparent and predictable and ensuring that everyone is treated fairly as well as highlighting demographics which are not performing up to standard. 

4. Evidencing Compliance

Consumer Duty is here for the long-term, while firms are just now adopting the practice, the FCA expects the outcomes to become better and for firms to evidence a higher understanding of their customers as time goes on. Firms must continuously monitor progress, report on their efforts and outcomes, and demonstrate compliance. Again, these points will only be met using reliable, consistent data. By tracking the impact of your initiatives on the consumer, you build a record of your commitment to Consumer Duty. This data not only helps to identify what went right, but also builds a story to show the efforts made by the firm to the regulators and the consumers, rectifying where adverse impacts were caused.

5. Continuous Improvement

Consumer Duty actively encourages firms to continuously improve their standards and actions when dealing with consumers. Data quality plays a critical role in this continuous improvement cycle. By analysing data on customer feedback, complaints, and outcomes, firms can identify areas for improvement, rethink their approaches, and adapt to ever changing needs of their consumers. Data forms a feedback loop, ensuring you learn from outdated practices and continue to improve what the consumers receive.

The Challenges of Implementation 

However, whilst there are undoubtedly many benefits of high-quality data, it does not come without challenges. Data silos, inconsistencies, inaccuracies, and unclear MI can all hinder decision making and muddy the path to delivery good consumer outcomes.

What happens if these data challenges aren’t addressed? The FCA has recently announced a possible Motor Finance misconduct scandal surrounding the presence of banned discretionary commission arrangements that may have affected thousands of consumers. It noted that a number of complaints in the Motor Finance sector have been rejected due to not being considered to have caused their customers loss. However, in 2020 the regulator said that its “ban would save consumers about £165m a year”. Many have compared the issue with the PPI scandal and have said they expect complaints management issues to increase for motor financing firms.

The FCA is increasingly taking these issues seriously in carrying out its current investigation, following two rulings in favour of consumers by the Financial Ombudsman Service, where thousands more fear they were charged too much for their finance.

Consumers will now have up to 15 months to refer their complaint to Financial Ombudsman Service, where the FCA will review historical arrangements and sales across several firms, to ensure fair practice. The original 8-week deadline for firms to respond has now also been put on pause.

The regulator has stated that if it does find evidence of misconduct, it will use it’s powers under S166, and ensure that anyone who is owed compensation receives an appropriate settlement.This breach demonstrates the importance for firms to properly measure the foreseen consumer effects of each of their products, and pricing structures. This relies on solid data sources and reporting of said outcomes, including customer outcome testing.  

So, how can firms overcome these challenges? 

• Investing in data infrastructure: consolidate data across systems, break down silos, and establish clear governance policies.
• Embracing data cleansing: actively identify and rectify inaccuracies, ensuring data integrity and reliability.
• Utilise data analytics tools: leverage technology to extract actionable insights and enhance customer-centric decisions.
• Foster a data-driven culture: empower employees to use data in their daily work, making it a core driver of decision making across your organisation.

Consumer Duty has ramped up the pressure on firms to evidence their data quality, setting the benchmark of expectation from the FCA of where firms should be and indeed the direction of travel in terms of regulatory scrutiny. Firms need to deliver – and evidence – good outcomes for every consumer and to do so data is your biggest asset. When used effectively, you can produce an effective single customer view and deliver positive outcomes to all consumers.

In our next article we will talk about how firms can look at data differently in determining good consumer outcomes and dive into critical MI that firms should be tracking and acting on.

Delta Capita can support you during these regulatory changes, through remediation of data quality issues, data governance, fostering and driving a data driven culture and building MI reporting capabilities to provide actionable insight on consumer duty issues affecting you. Get in touch today to find out more.

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