In recent years, financial regulators have shifted their focus from a reactive to a proactive approach.
In order to reflect this change in emphasis, companies need to be closer than ever to their customers when designing products; the tighter scrutiny on governance during the product lifecycle means that it is vital that firms show clearly that they are putting their customers at the heart of their business.
The Financial Conduct Authority have made it clear that they are looking closely at the culture of firms, and how any risks associated with the design and distribution of the products are addressed. In a recent speech, Clive Adamson, the FCA’s Director of Supervision, emphasised good product governance throughout the product lifecycle, from initial product design and approval, review and overall governance processes.
Addressing the General Insurance conference in June 2014, Adamson said that good product design involves “understanding the needs of particular customer groups, working through what a fair outcome means for a particular product, stress testing how the product performs in different scenarios, whether it constitutes good value to the customer, how it will be sold, whether consumers’ behavioural biases are being exploited in the sales process and how post-sales service over the product lifespan will be designed”.
Traditionally used mainly by marketing teams, ‘voice of the customer’ (VoC) programmes can help compliance teams and senior management to adhere to the FCA’s new demands for customer engagement in product design. VoC programmes, also known as insight communities, can provide clear, documented evidence of customer-focused review and challenge, leading to a greater understanding of customer needs for each product.
It is clear that the FCA is determined to take action against firms who cannot provide evidence of good consumer outcomes. A VoC programme can enable executive management to have a strategic view of this process; it can be recorded and audited, and changes may be clearly demonstrated to the FCA.
In many industry sectors, VoC programmes are used routinely at the start of any new product or service design, to capture a customer’s expectations, wants and needs; however, financial services firms have been slow to take them up. As a market research technique, VoCs have been seen as the preserve of the marketing department; this now starting to change as other areas within a firm come to understand how useful they are in meeting the FCA’s new challenges.
Not only useful for initial product design, VoC programmes can also take place throughout the entire product lifecycle, allowing firms to continually assess whether products are appropriate for their existing and potential customers. Traditional physical focus groups are able to access only relatively few customers, and may be expensive and time-consuming, but by using a VoC programme, firms are able to assess the views of hundreds or thousands of their customers, on an ongoing basis.
Marketing and compliance teams can use VOC programmes to bring their customers right into the heart of the business, leading to greater insight. For firms working within the current challenges posed by the FCA, being able to articulate the voice of their customers will go a long way towards showing that they have done the right thing.