Consumer Duty and FinCrime Controls

The Challenge: Striking the Balance Between Consumer Duty and Financial Crime Controls

Building fintech products that successfully navigate Consumer Duty rules while tackling financial crime requires a robust set of controls. These controls should both prevent money laundering and ensure positive customer outcomes. Over-zealous financial crime controls could inadvertently exclude legitimate customers from using services, pointing to a need for balanced risk management.

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Objective Review: Identifying Imbalances and Collecting Management Information

A detailed, objective review of existing controls is necessary to identify potential imbalances and areas where recalibration may be required. Key metrics, such as false positives and customer terminations, can provide invaluable insights into control effectiveness. In the financial crime realm, data collection poses unique challenges due to the uncertain nature of distinguishing between false positives and actual hits.

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Risk and Vulnerability: The Need for Checks and Balances

Addressing customer vulnerability in the context of financial crime can introduce complexities. For instance, allowing customers to self-identify as vulnerable may inadvertently impact risk scoring models and trigger unintended consequences. Without the right checks and balances, there could be adverse outcomes for vulnerable individuals, such as increased transaction friction or premature termination of accounts.

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Determining Boundaries: Key Considerations

Understanding the boundaries between Consumer Duty and financial crime controls is essential. Firms must navigate legal requirements, industry codes, and ensure a sustainable business model. Compliance with anti-money laundering laws, the Proceeds of Crime Act (POCA), and adherence to industry codes like the Contingent Reimbursement Model (CRM) Code are significant considerations.

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Practical Steps: Achieving Equilibrium

Guided by the principles of Objectives and Key Results (OKRs), let’s explore the following strategic initiatives.

Objective: To develop and implement a comprehensive process for identifying and supporting vulnerable customers during our Fin Crime controls.

Key Results:

1. Document our financial crime rules and how we identify false positives and vulnerable customers by [date].
2. Review these rules by [date], aiming to highlight and address any potential imbalances. Present findings at the [name of committee] governance meetings.
3. Create and launch a dashboard by [date] to continually monitor critical metrics (false positives, vulnerable customers in the false positive group, account terminations resulting from false positives). Regularly share MI with the Consumer Duty Champion and [name of committee].
4. Implement a ‘vulnerable customer check’ before any financial crime-related account termination by [date]. Accompany this with comprehensive training sessions for all relevant personnel.

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Originally posted on tenetlaw.co.uk

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