Regulators have an expectation that firms – financial services operators – treat consumers respectfully and with regard to customers’ reasonable expectations. This means that firms have to imagine or try and imagine what reasonable expectations might be from a consumer perspective – and these expectations might vary depending on the financial sophistication of the customer. This is part of the new world of conduct risk.
So who challenges products and services from the customer’s perspective? What internal process exists to represent the customer/consumer’s perspective?
Internal auditors should check that there is a provision for appropriate Customer Challenge to be made (inputs coming from appropriate stakeholders [possibly NEDs, customer representatives, or representatives from regulators] to help ensure Customers’ interests are fairly represented) during a Product’s Lifecycle and in the approach to Product Design, Product Distribution and Product Service.
It may not be necessary to do this for all products, but it would be wise to do this for products that are defined as ‘high risk’ products or for those where it would be reasonable to assume that the customer’s financial sophistication level was low.
To quote the FCA: ” The Financial Conduct Authority (FCA) will put consumers’ needs at its heart and will focus even more on ensuring there is a fair deal between firms and their customers.”
In part this means that firms must learn to think like customers, in part this means that firms must pay greater attention to conduct risk and, taking both factors together, a pretty good reason for firms operating an internal customer challenge function.