The Current Account: The Latest Headlines From Across The Banking Sector - December

Welcome to The Current Account! We hope you enjoy our latest round-up of the top news from the industry in November.

Headlines from the banking sector this month

In this edition of The Current Account, we focus on the upcoming Consumer Duty regulation, and the growing adoption of AI and Machine Learning, and how the regulators are responding…

Are you ready for Consumer Duty?

• Now that the 31st October deadline has passed, banks are in the midst of their detailed Consumer Duty implementation planning and gap analysis, with some already implementing quick wins that will accelerate their progress ahead of the July 2023-24 deadlines.
• Many firms have already been asked to share their implementation plans with the FCA, even those who don’t have a formal supervisory relationship. This is a level of scrutiny the industry hasn't seen before and enhances the pressure on firms to meet expectations.
• Those firms who have implemented PROD and TCF effectively will be further along the journey, but may not have the behaviours, processes, and technology in place to consider the needs of specific customer groups, including vulnerable customers, that the Duty calls for.
• Although no one firm is the same, we have found that the majority of activity lies in evidencing a customer-centric culture and embedding this throughout Consumer Understanding and Support-related activities. For example, it is no longer sufficient to have a "TCF" tick box in QA logs, and instead, firms should detail the customer outcomes being monitored, evidence actions taken to rectify issues, and document the feedback and/or data used to continuously improve comms and support services delivered.
• Equally, many firms have a culture or purpose statement focused on "acting responsibly towards our customers", but declaring this externally and/or internally is not enough. The FCA can and will ask for evidence of how this is embedded at all levels, at any point in time, and firms must be ready to prove adherence.

PEN Point Of View:

It is imperative that firms ask the right questions of themselves, and actively consider where they may be inadvertently driving negative outcomes for certain customer groups through analysing data and testing hypotheses e.g. what trends appear when comparing the degree of deprivation in certain customer groups to the percentage of those customers entering unarranged overdrafts? 

It is expected that firms have differing levels and quality of data available, but doing nothing with the data that already exists will be inexcusable. 

PEN can conduct a Customer Experience (CX) Maturity Assessment, using our tried-and-tested CX framework, to assess your organisation’s capability to manage CX; determine the level of customer-centricity that exists at all levels; and provide practical recommendations for quick wins and longer-term improvements. This assessment is aligned to Consumer Duty and includes Diversity, Equity and Inclusion considerations. Reach out to Asha Sanderson if you’d like to know more or download the PEN Consumer Duty brochure.

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Artificial Intelligence and Machine Learning…

• Artificial Intelligence (AI) and Machine Learning (ML) are technologies that are developing at a fast rate and are set to make Financial Services firms more efficient, accessible, and tailored to meet customer needs. The pros and cons of these technologies are known, but they need to be underpinned by high-quality data to be reliable.
• The Regulators recently published a discussion paper on the use of AI and ML in the financial services industry. The purpose of this paper is to share and obtain feedback on the potential benefits and risks related to the use of AI and ML in the FS sector, how the current regulatory framework may apply, if any further clarification may be helpful and how policy can support safe adoption of this technology.
• In October 2020, the BoE and FCA established the AI Public-Private Forum (AIPPF) – a collection of experts in this area to further investigate AI innovation and safe adoption within financial services. The AIPPF published its first report in Feb 2022, and the recently published discussion paper is the response to this report.
• Firms will need to consider the existing regulatory framework when using AI and ML, but be prepared to respond to new regulations once the response deadline has passed (responses to the discussion paper are due February 2022). We expect that firms will need to review their decision-making and governance processes with their ever-growing adoption of AI and ML.

PEN Point Of View:

AI and ML will continue to transform the way banks operate, and it will be interesting to see what measures the regulators put in place to govern the use of these technologies. As with all technology and wider application of automation, AI and ML will continue to evolve and financial institutions will need to be ready to make the most of the newest innovations to reduce cost, comply with regulations, improve fraud detection, and streamline processes and customer journeys.

And in case you missed it…

• Regulators are pushing fintechs to boost financial inclusion and boost local economies.
• Banks and the Financial Services Skills Commission have developed a framework to tackle the IT talent gap hitting UK banks.
• Banks are continuing to close branches as more people use online banking, but we are seeing joint hubs being opened to provide customers the option to carry out regular cash transactions face to face.