08/08/2023 With Consumer Duty, effective July 31, 2023, now seems like a good
opportunity to see how brokers can use data to aid their efforts to profile and protect
clients. Data has been used for Client Profiling for regulatory compliance for decades; with
the introduction of AML and KYC regulations, brokers have long had to gather data to assess
appropriateness. Brokers will be very familiar with the need to collect information to
ensure the product on offer is fit for the end user, both from a vulnerability perspective,
as well as fraud prevention. But the requirement for information gathering does not end when
clients are onboarded. This data gathering and analysis process allows brokers to
consistently identify clients who necessitate further assistance and education, as well as
enable the flagging of clients that may pose potential risks. Risks form a wide spectrum
ranging from highly vulnerable customers to individuals seeking to exploit the trading
platform for illegal endeavours. Client profiling allows brokers to more easily meet their
compliance commitments, as well as their obligation to their customers. These processes act
as safeguards to protect a firm from the legal ramifications, but also serves as a
cornerstone in building and maintaining a positive brand image. In an era where reputation
is inextricably linked to success, this aspect cannot be overstated. Vaishali Chudasama,
a Senior Compliance Analyst at Finalto, highlights the essential nature of data for
brokers as they move through the ever-evolving compliance landscape. “Brokers need to
scrutinise data to detect possible violations and stay ahead of their regulatory
commitments. Taking timely corrective measures protects them from legal repercussions while
simultaneously building positive brand equity,” said Chudasama. And this element is
important in the context of the incoming Consumer Duty guidance. The tightened regulations
now put more onus on financial services providers to ensure the best interests of consumers
are always at the forefront of how they behave, and good outcomes being delivered can be
evidenced. The guidance explicitly says that products and services should be designed to
meet the needs of consumers and allow them to use the benefits without undue hinderance.
However, it also increased the onus on financial services providers to ensure that products
are ‘relevant’ – and this is something that does not stay fixed. What may have been
appropriate at onboarding, may no longer be so if something changes in the client’s
lifecycle. Bereavement, changes to employment including redundancy and ill-health can all
increase the risk of certain products and create vulnerabilities. This is particularly true
in cases where a broker becomes aware of gambling addictions or high levels of debts.
Collecting data regularly, including by check-ins with a relationship manager, or using data
tracking to flag any changes in behaviour can provide insight into clients’ preferences,
needs, and risk tolerance. Understanding these parameters enables brokers to offer
experiences that resonate with client needs. She explains: “By understanding these
aspects, firms can provide more bespoke experiences and be more proactive in addressing
vulnerable client behaviour.” Brokers that understand the role that data plays in
client profiling, and how this can aid with their compliance with Consumer Duty
requirements, will be optimally positioned to adapt to an ever-evolving trading landscape,
thus ensuring not only compliance but also sustained success and growth in an increasingly
competitive marketplace.
Group