As the financial industry gets to grips with the new Consumer Duty (CD), the PRA’s recent questionnaire – and the previous ‘Dear CEO’ letter – has provided more food for thought.

During two bank forums hosted by Flagstone and attended by over 50 attendees from our banking partners, we discussed CD and the PRA’s questionnaires, and looked at the potential fallout from both.

Consumer Duty

CD applies to anyone with ‘material influence’ over the design or operation of retail products and services, and includes:

• Price and value
• Distribution of retail products,
• Communications issued
• Customer support
  
  

Our partners’ thoughts on the above points during this consideration phase revealed the key standout of CD was the fair value of pricing – something not explicitly covered by Treating Customers Fairly.

Given the simplicity of most savings accounts, it was felt CD was likely to be more relevant for – and focused on – complex financial products for retail clients. However, another point suggested CD is aimed at lower-paying accounts and intended to challenge current market inertia.

If the latter is true, implementing CD may be less of a concern in the ‘deposit aggregator’ (DA) space. For example, our cash deposit platform lists a wide number of products readily-available to clients – demonstrating fair price and value.

Teaser and introductory rates may be more of an issue because the regulator looks at these less favourably. In such cases, our sector will need to ensure we look after the client throughout the product’s entire lifetime.

The banks suggested ‘material influence’ could cause confusion, particularly over design, operation and distribution in the deposit aggregator (DA) space.

The widely-accepted opinion suggested clearly-defined roles:

• As the regulated entity, the bank has accountability and responsibility for the product and must show they have sufficient oversight of the DAs they work with.
• Banks should also act as the ‘manufacturer’ as each bank owns its products.
  
  

While there was debate over whether the DA should be ‘manufacturer’ as they own the communication and support functions, the partners agreed DAs should be considered the ‘distributor’.

Most attendees believe they can repurpose their existing tools and processes to meet CD’s requirements. However, there will still be a clear need for ongoing, regular dialogue between banks and DAs.

PRA questionnaire and ‘Dear CEO’

The PRA questionnaire and the previous ‘Dear CEO’ letter has led banks to believe regulatory changes are coming.

Though most banking partners feel oversight of DA compliance is currently their responsibility, change is expected – possibly towards a more directly-regulated model. It is expected that the regulator may look to impose a more formal cap in the long term.

Attendees also felt the PRA questionnaire would require them to make several changes, including:

• Liquidity treatment. While banks are currently free to distinguish funds from DAs as they want to, they believe the regulator might introduce rules on how funds are classified.
• Concentration limits.
• A review of customer onboarding journeys and client documents ensuring clients have more clarity.
• Further technology integration between deposit-taking banks and DAs – driving a move towards application programming interfaces (APIs) rather than relying on emails.

Support for banking partners

We invited our partners to give us their thoughts on how we could support them further.

Top of the wish list is more information around FSCS deposits, including better education for our clients to ensure that they fully understand how placing their cash deposits with Flagstone rather than a high street bank account affects their FSCS cover.

Banks also wanted increased evidence of FSCS testing, compliance monitoring, and external or internal audit findings between partner banks and DAs. We have implemented ongoing governance calls with a number of our partners as a result.

Collaboration was another key point. Our partners would like to see more collaboration between DAs, and for Flagstone to communicate any significant policy changes directly to banks’ compliance teams.

Our retail distribution channel

We are continually growing our distribution channels so banks get the best funding sources in the market. Improved tech and lower minimum deposit amounts mean we can now handle far more volume through this channel – opening up a considerable cash opportunity for partners.

We are also committed to continually improving the client experience – testing different product types, placement/comparison sites and introducing welcome incentives. The result has seen take up in our retail distribution channel surge.

For more information about our distribution channels or our platform, please get in touch at banksteam@flagstoneim.com