10 Steps to Executing an Effective Redress Exercise

A certainty in business is that things can go wrong and often do. In financial services, with significant consumer protections and products becoming increasingly more complex, the propensity for things to go wrong and affect customers is greater still. When things do go wrong, proactive redress provides the mechanism to put things right, meet regulatory expectations and restore customer confidence in your brand.

Whilst industry wide redress exercises instigated by regulators are high profile (examples include the mis-selling of PPI and Interest Rate Hedging Products), there are frequently smaller, firm-specific instances that don’t make the headlines.

Regardless of the size and scale, it is common for the execution costs and timescales of redress exercises to far exceed initial estimates. A well thought out approach to delivering a redress exercise and capturing valuable learnings will help ensure the exercise is completed swiftly and without undue cost, reducing the impact to consumers and business-as-usual activities, and just as importantly, protecting hard earned reputations.

In this blog, we present ten important steps for considerations which, in our experience, will enable an efficient redress process and avoid costly pitfalls. We also explore in more detail the practical considerations under each of these 10 Steps.

We also explore in more detail the practical considerations under each of these 10 Steps

The 10 steps

1. Identify the harm

In many cases the harm will be obvious, however no matter the circumstances, assessment of harm must be made with regards to the relevant regulatory framework. In more complex and widespread scenarios, the regulator may set out their view of what harms have occurred and will want to see ‘good customer outcomes’. When considering customer outcomes, firms should be aware of the subjectivity in interpreting rules, which may mean the Regulator’s interpretation and therefore expectations are different to those arrived at by the firm.

2. Understand the causes of harm

A root-cause analysis is key in understanding how the issue arose, how many customers were affected and more importantly, in determining what actions are required to ensure no additional customers are impacted by this or similar issues elsewhere in the business.

3. Identify the population of affected customers

Identifying all the affected customers is often not as straight forward an exercise as you might expect. If the issue affected customers over an extended time frame, there may be challenges in data discovery, which are amplified if multiple systems require accessing or system migrations have taken place in the intervening period. Additionally, the regulatory framework may require specific customer assessments, for example assessing customer sophistication, which may require data points not collected in the ordinary course of business.

4. Document your redress framework and methodology

In industry wide redress exercises, it’s not unusual for regulators to implement a uniform redress framework to ensure consistent treatment of customers across the industry. In firm specific instances, a redress methodology will likely need to be devised and agreed with the regulator. This should concisely document what went wrong, how many customers were affected, the outcome customers should have experienced and the methodology by which customers are to be returned to the right outcome. As noted in (1) above, care should be taken to consider the spirit of the regulations, the UK regulatory regime seeks good customer outcomes when assessed on a ‘fair and reasonable’ basis.

5. Extract the data

In our experience, data discovery, extraction and quality assurance is one of the most significant stumbling blocks experienced by firms. The more complex the methodology, often the greater the number of datapoints required and the more onerous and riskier the exercise becomes.

6. Construct your calculations

Converting a redress methodology into an operational process can be challenging. You may need lots of data points, complex calculations, technology infrastructure, multi-functional teams from across your organisation (possibly with external support) and even a working group on the interpretation of how the ‘rubber hits the road’ in applying methodologies to real cases.

7. Undertake quality reviews of inputs and outcomes

As with all calculations, the quality of output is inextricably correlated with the quality of inputs. Firms should undertake due diligence on the quality of data before they are used in calculations. They should also consider processes to validate the accuracy of outputs, using KPI’s, manual sample checks or in some instances a secondary ‘challenger’ calculation model.

8. Construct appropriate Management Information and KPIs

Regulators and those charged with governance will want to know how well the redress exercise is progressing not to mention how much it is costing. Defining KPIs and collecting project data from the outset will enable better project management, aid stakeholder communications and add credibility to the exercise. KPIs might include how many customers have been identified as in scope, how many have been redressed and the forecast path to redress all customers.

9. Draft clear communications

Redress exercises may be reported in the press long before methodologies and redress amounts are determined, it is therefore important to implement a customer communications plan early on, which sets out key information and outlines the process to be followed. As the exercise progresses, updates and outcomes should be presented to customers in simple terms as customer may not fully understand the details of the exercise. Firms may also need to identify prescribed notification requirements to customers and regulators and possibly abide by certain prescribed time limits.

10. Embed learnings in product development and sales frameworks

Once the harm and causes of harm have been clearly identified, firms should reflect on these costly lessons and ensure learnings are embedded in their policies and procedures. Stakeholders understand mistakes happen but will seek assurances that they won’t happen again.

The key takeaways

Embarking on a redress exercise without sufficient planning and possibly in the full glare of the public can be littered with potential pitfalls. To help plan and execute a successful redress approach, it may be beneficial for firms to seek third party support to review initial findings, devise redress methodologies and in drafting communications to customers and regulators. If the subject matter is operationally or technically complex, or if resourcing the process is a constraint, advisors may also be able to assist in execution of the project and provide assurance as to the appropriateness and adequacy of the methodology used. Getting it right first time will reap rewards.