Why a ‘Machine Line of Defence’ is critical to meeting the FCA’s Consumer Duty

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byChisimdi Nzotta

The FCA is constantly reminding lenders of the standards of the consumer duty of care as the cost of living keeps rising. Over the past six months, the rising cost of living has rarely been out of the headlines. As a result, many households have found it almost impossible to keep up with their monthly bills, resulting in more vulnerable customers for financial firms. A greater number of customers are defaulting on their payments, increasing their level of debt and finding themselves in a great deal of financial difficulty – often for the first time. 


Nearly a quarter (23%) of adults surveyed in the ONS 2022 report stated that it was very difficult or difficult to pay their usual household bills in the last month compared with the previous year. 


What is the FCA’s Consumer Duty?


The FCA recently published new Consumer Duty of care proposals bring in a higher standard of consumer protection in retail financial markets. It is considered to be a huge shake-up within the industry. Many financial services companies require a complete overhaul of not only processes and communications but also training and culture throughout their firms.


While the proposals are somewhat vague, the update is long overdue from a customer point of view and will no doubt bring in a new level of best practice when treating vulnerable customers and all other customers fairly.


What is the FCA doing to address the cost of living crisis?


The FCA is responsible for ensuring that customers’ needs are being looked after by those they regulate. The increasing cost of living has brought this right to the forefront of their priorities.


In a letter to over 3500 lenders, the FCA encouraged them to act now to help any of their vulnerable customers and customers who will potentially find themselves struggling in the coming months. Focus was put on making sure that providers understood each customer’s individual circumstances and needs and were ensuring there was additional support for vulnerable customers. Any firm that fails to provide this help will be expected to improve how their customers are treated. For example, they must ensure that the fees charged are considered fair and only cover costs that are incurred by the provider (i.e. ensuring they are not profiting from the situation).


The FCA is deliberately moving to a ‘show me, don’t tell me’ approach, implementing a data-first evidentiary control model instead of person-centric oversight. This means that firms will need to present actual data to the FCA on what they’re doing to protect and help their customers. The onus is not on the FCA to prove customers aren’t being harmed or receiving poor outcomes. This puts a huge amount of emphasis on the quality of data being provided, with more regular MI and metrics being used and monitored to ensure consistently better customer outcomes. 


To meet the consumer duty of care guidelines, firms will need to identify and implement the right technologies to monitor and analyse a range of different data points. This will include every customer interaction and outcome, with a higher number of risk points that will be regularly far more stringently than previously. Agent performance will also be a key factor to monitor, ensuring that customers receive consistently good customer service from their providers.


How can businesses prepare for the changes?



AI platforms such as Aveni Detect are game-changers in protecting your customers and having the data and MI to prove your compliance with the FCA’s consumer duty of care. 


Unfortunately, with the changes that are being introduced via consumer duty, sticking to the traditional three lines of defence model will no longer cut it. Firms currently complete a whole host of governance, including segregation of duties, marketing communication committees, training programmes, client committees and product governance. However, we’re still seeing only 35% of consumers trust their financial services providers to act in their interests. Additionally, most companies only monitor 1% or less of their customer interactions.


Using traditional frameworks, processes and data systems, you’ll need a huge number of people in your QA function to monitor conversations and meet the consumer duty requirements. The only way firms will be able to capture, analyse, understand, and action data from interactions is through machine assessment, or at least by using machine learning fused with human intelligence.


Aveni Detect offers a ‘machine line of defence,’ capturing every single customer interaction and analysing it to provide vital feedback to three other lines of defence to ensure regulatory compliance. In addition to unparalleled oversight and controls, this also means there are greater levels of efficiency with automated quality assurance processes and more targeted agent actions. 


Within the 1st line of defence, Aveni Detect captures and analyses customer feedback, flags and assesses any expressions of dissatisfaction or vulnerability, and provides feedback on products and services. There is also the capability to identify personalised coaching opportunities for each agent. 


The 2nd line of defence provides machine assessment for every single customer interaction, no matter how short. It can automatically triage high-priority cases which require human interaction, helping to drive the efficiency of human monitoring processes. It can also be used to identify themes and trends, providing helpful and actionable insights back into the business. The automated reporting function is vital for management committees to understand what is happening on the ground with their customers and jump on any negatively impactful issues quickly.


The 3rd line of defence focuses on providing greater transparency and improved understanding of customer interactions. It involves data-driven thematic reviews providing a clear breakdown of topics, themes and insights. This makes it incredibly easy to understand what is happening within the customer base and to highlight any potential issues as they come up. For example, regarding the increase in the cost of living, Aveni Detect can be used to understand vulnerable customers who are negatively impacted. In addition, the platform will identify customers unable to make their usual payments, helping providers to create tailored and fair plans to help them move forward.


Machine Line of Defence


For firms to be able to monitor, capture and analyse the data required to provide the regulator with the assurances they are after under the new Duty, they’ll have little choice but to turn to a machine line of defence. It will enable them to digitise processes, automate for efficiency, and achieve much greater QA coverage. 


Given the macro-economic factors at play here and the consumer duty’s insistence for firms to take customer vulnerability more seriously, it’s imperative firms act now to identify and implement the technologies. Moreover, they’ll need to do so in time for the April 2023 deadline when consumer duty will be codified into enforceable rules to support not just the vulnerable but all consumers.


Find out more about Aveni Detect


If you’re interested in finding out more about how Aveni Detect can help your business meet the FCA’s consumer duty of care, contact us today. 



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