Understanding risk in a post-Consumer Duty world

This article first appeared in Money Marketing magazine in November 2025.

The Consumer Duty has been with us for over two years and it's becoming clear that it represents a fundamental shift in the FCA's regulatory philosophy and methodology. The evolution from principles to outcomes, enforced through data-led supervision, is driving a revolution in regulatory risk management.

Treating Customers Fairly was also a flagship initiative but I can't recall it fundamentally changing the way that firms managed their compliance risks. But I do find myself thinking hard and looking forward to how to adjust to this new regime.

The FCA has done a good job of describing the high-level principle, three cross cutting rules and four outcomes, so I won't regurgitate. The big change in risk is that it shifts the misconduct burden of proof on to firms. Instead of having to methodically gather proof of wrongdoing, the regulator's threshold for intervention is now much lower. It just needs to identify an absence of evidence that a firm's customers are in safe hands. This requirement for 'ongoing positive assurance' is new but here to stay.

Recipients of the recent s.165 information requests will recognise the discomfort of not being able to easily reach for the detail required by the regulator. And while the FCA was clear that the vast majority of clients received value in ongoing advice services, the financial provisions made by some firms to remedy shortcomings serves to emphasise the consequences that result from gaps in evidence.

The benefits far outweigh the downside, though. The Duty's focus on evidencing what happens 'in real life' narrows the gap between compliance related tasks and the 'proper' business activity. The caveat is that commercial models need to be built around acting in the customer's best interest. The outcomes-based framework is also by its nature much more adaptive, being able to flex as the world changes. Moving from context specific prescriptive rules brings freedom for firms to innovate based on what their own data is telling them works for their customers. The prospect of a slimmer rulebook and a reduction in the almost constant consultations to amend rules or make new ones is a regulatory dividend that I can get behind.

While the Duty applies to all firms which deal with retail customers, it is arguably financial advisers who stand to benefit most in the new world. There is no deeper relationship in financial services than that between a client and their trusted adviser. In evidencing that they are honouring that trust, advisers will be applying the principles of the best professional services firms whose commercial success is built on the value they provide to their clients. Compliance with the Duty is obtained with no additional effort.

The key risk management challenge for advice firms is that they need to go beyond suitability and, to a lesser extent, the rules in COBS. Firms will need to invest in building the components necessary to articulate, deliver and evidence the incredible value we know they provide to their clients. By investing in a monitoring framework, and acting on the results, advice firms will meet their Duty obligations within the context of good business management.

Concepts like clear client segments, contractual clarity and strong tracking of value will go a long way to keeping clients, PI insurers, the regulator, and ultimately your accountant, happy. To give an example, the Duty demands an understanding of cross subsidy and the extent to which one group of customers receive different levels of value. This allows advisers to then identify the segments and service propositions that attract a higher price and where the client also receives terrific value. If it is possible to bring down the 'cost to serve' without reducing value for that segment, then an adviser could look to grow that segment.

Thriving rather than just surviving in the Duty era is not a given. Having strong organisational arrangements becomes mission critical in a data-led supervisory environment. The advice firms that have these in place will find they worry and talk less about compliance - with a focus on value, it just becomes good business practice.