Navigating the Consumer Duty: Ensuring Compliance in Outsourcing Arrangements for Regulated Firms

A guide for all regulated firms to meet their obligations under the Consumer Duty when outsourcing products and services

Regulatory firms are required to comply with strict standards and regulations to ensure that they provide their customers with fair, transparent, and appropriate products and services. One of the most recent developments in financial regulation is the introduction of the Consumer Duty, which places greater emphasis on the responsibility of financial institutions to meet the needs of their customers.

Outsourcing arrangements can help regulated firms to streamline their operations and reduce costs, but they can also pose significant risks to customers if they are not managed effectively. Therefore, it is essential for regulated firms to ensure that their outsourcing arrangements are compliant with the Consumer Duty.

Here are some key considerations for regulated firms to ensure compliance with the Consumer Duty in their outsourcing arrangements:

1. Objectives: Define the objectives of the outsourcing policy and ensure that they align with the obligations under the Consumer Duty.

2. Governance: Clarify the roles and responsibilities of the board, senior management, and operational staff in fulfilling the Consumer Duty.

3. Risk Management: Update the risk management approach to ensure that risks to customers are identified, assessed, and mitigated appropriately.

4. Due Diligence: Enhance the due diligence process for selecting and evaluating outsourcing service providers to ensure that they meet the obligations under the Consumer Duty.

5. Contracting: Review and update the contract requirements for outsourcing arrangements to ensure that they include provisions for protecting the interests of customers and complying with the Consumer Duty.

6. Monitoring: Establish procedures for monitoring outsourcing service providers to ensure that they are meeting the obligations under the Consumer Duty.

7. Contingency Planning: Review and update the contingency planning approach for outsourcing arrangements to ensure that it includes measures for protecting the interests of customers in the event of disruptions or failures.

8. Reporting: Establish reporting requirements for outsourcing arrangements that provide transparency to customers about compliance with the Consumer Duty.

9. Termination: Review and update the circumstances under which outsourcing arrangements may be terminated to ensure that the obligations to customers are protected.

10. Audit: Enhance the auditing procedures for outsourcing arrangements to ensure that they include a review of compliance with the Consumer Duty.

In summary, regulatory firms must ensure that their outsourcing arrangements meet the obligations of the Consumer Duty. By taking the necessary steps to manage the risks associated with outsourcing, firms can meet their obligations and deliver fair, transparent, and appropriate products and services to their customers.